UPDATE 1-FINRA fines Guggenheim for failing to supervise two CDO traders

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Oct 11 (Reuters) - Guggenheim Securities LLC has been ordered to pay a fine of $800,000 for failing to supervise two former traders who tried to hide a trading loss in 2008, Wall Street's industry-funded regulator said.

The Financial Industry Regulatory Authority (FINRA) also suspended Alexander Rekeda, the former head of Guggenheim's collateralized debt obligation (CDO) desk, for one year and fined him $50,000. Timothy Day, a trader on Guggenheim's CDO Desk, was suspended for four months and fined $20,000.

FINRA said the traders, who had lost money on a 5 million euro ($6.45 million) junk-rated collateralized loan obligation, tricked a hedge fund into overpaying for the CLO by falsely presenting it as part of a package offered by a third party.

After the customer queried the pricing, the traders and the hedge fund reached a deal under which the hedge fund agreed to overpay in return for cash and breaks on fees, FINRA said.

FINRA, which does not regulate hedge funds, did not identify the hedge fund.

"Guggenheim's inadequate supervision allowed their traders to engage in extensive and repeated inappropriate actions to try to conceal a trading loss," Brad Bennett, FINRA's vice president and chief of enforcement, said in a statement.

"Today's settlement relates to sales practices by two former employees of Guggenheim Securities," a Guggenheim spokesman said, adding that the firm had cooperated fully with FINRA throughout its investigation.

As part of the settlement, Guggenheim has to retain an independent consultant to review its supervisory procedures. ($1 = 0.7751 euros)

(Reporting by Sharanya Hrishikesh and Anil D'Silva in Bangalore; Editing by Sreejiraj Eluvangal)

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