Allianz to pay $6 billion in US fraud case, fund manager charged

NEW YORK/MUNICH, May 17 (Reuters) – Germany’s Allianz SE (ALVG.DE) has agreed to pay more than $6 billion and its U.S. asset management unit will plead guilty to criminal securities fraud following to the collapse of its Structured Alpha funds earlier this year. Covid19 pandemic.

Allianz’s settlements with the US Department of Justice and the US Securities and Exchange Commission are among the most significant targeting a global financial institution.

Grégoire Tournant, the former chief investment officer who created and oversaw the now defunct Structured Alpha funds, is also being charged with fraud, conspiracy and obstruction, while two portfolio managers have pleaded guilty.

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With over $11 billion in assets under management, Structured Alpha funds lost over $7 billion as the spread of COVID-19 rocked markets in February and March 2020.

Prosecutors say the US unit, Allianz Global Investors US LLC, misled pension funds for teachers, clergy, bus drivers, engineers and other investors into underestimating the funds’ risks and exaggerating the quality of their oversight. Read more

Investors were told the funds used options that included hedge positions designed to protect against stock market crashes, but prosecutors said the individual defendants repeatedly failed to buy the promised hedges.

The defendants also inflated fund performance to boost their own pay, collecting 30% of excess returns over relevant benchmarks, prosecutors said.

Tournant’s salary was the highest or second highest in the Allianz unit from 2015 to 2019, including $13 million in 2019, according to court documents.


Tuesday’s settlement calls for Allianz to pay a $2.33 billion criminal fine, return $3.24 billion and forfeit $463 million, according to court documents.

Allianz also agreed to a $675 million civil penalty to be settled with the SEC.

Two former Structured Alpha portfolio managers, Stephen Bond-Nelson and Trevor Taylor, have agreed to plead guilty to fraud and conspiracy charges.

“Even the most sophisticated institutional investors, like pension funds, can be victims of wrongdoing,” SEC Chairman Gary Gensler said in a statement. “Unfortunately, we have seen a series of recent cases where derivatives and complex products have harmed investors across all market sectors.

Lawyers for the individual defendants declined to comment immediately. Tournant surrendered to authorities in Denver, Colorado, the Justice Department said.

Allianz’s guilty plea results in a 10-year ban on Allianz Global Investors from providing advisory services to US-registered investment funds.

As a result, Allianz agreed to transfer approximately $120 billion in investor assets to Voya Financial Inc (VOYA.N), in exchange for up to a 24% stake in Voya’s investment management unit.

Allianz said it had previously set aside enough money to cover the settlement. The debacle had frustrated shareholders and prompted some senior executives to cut their own salaries, as well as cut Allianz profits.

Shares of Allianz rose 1.2% in late afternoon trading in Germany.


Tournant joined Allianz in 2002 and founded the funds three years later.

Regulators said the misconduct included a situation where he and Bond-Nelson edited more than 75 risk reports before sending them to investors, to reduce expected losses in stressed market scenarios.

The SEC said the potential losses in a stock market crash scenario have been changed to 4.15% from the actual 42.15%, simply by removing the “2”.

Allianz suffered from “significant shortcomings” in its oversight, including the failure to ensure that Tournant used its promised hedging strategies, although only people in its group were aware of the misconduct before March 2020, said the Department of Justice.

Bond-Nelson, under Tournant’s guidance, also lied to Allianz’s in-house attorneys after the company became aware of the altered reports and the SEC began investigating alleged misconduct, the Justice Department added.

Allianz, also known for its insurance operations, is one of Germany’s best-known brands and an Olympic sponsor. The Allianz Arena, near its Munich headquarters, is home to Bayern Munich, one of the most well-known football teams in the world.

Investors have filed more than two dozen lawsuits against Allianz over the collapse of Structured Alpha funds.

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Reporting by Jonathan Stempel in New York and Tom Sims and Alexander Huebner in Munich; Additional reporting by Luc Cohen in New York; Editing by Chizu Nomiyama and Tomasz Janowski

Our standards: The Thomson Reuters Trust Principles.

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