By Emily Stephenson

Dec 17 (Reuters) - Aladdin Capital Management and its broker-dealer agreed to pay more than $1.6 million to settle charges it falsely told clients it would co-invest in two financial products, the U.S. Securities and Exchange Commission said.

Aladdin, an investment adviser, said in marketing material that it had "skin in the game" in two collateralized debt obligations, even though it did not invest in the products, the SEC said on Monday.

The Connecticut-based firm continued from 2007 to 2010 to erroneously tell clients that it was investing in the products alongside them, the SEC said.

Aladdin said in a statement on Monday that it co-invested in more than a dozen transactions from 2005 through 2009. In 2006, a person at the firm, who was not named in the statement, did not ensure that Aladdin reserved funds to co-invest in the two products, the firm said.

Regulators also said former executive Joseph Schlim agreed to pay a $50,000 penalty to settle charges related to his role.

The SEC said that as CFO, Schlim was responsible for reserving funds to co-invest but that he failed to ensure funds were allocated for the two CDOs.

Schlim left Aladdin in 2009, said his attorney, Jack Sylvia of Mintz Levin.

"He is pleased to have this matter behind him and looks forward to directing his attention to his current endeavors," Sylvia said in a statement.

Aladdin and Schlim neither admitted nor denied the charges, the SEC said.

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