Allianz, which has denied wrongdoing, said earlier this month that independent advisers its hired to dig into what happened have thus far found no breaches of duty by the insurers management board. As a result, Allianz plans to move about $120 billion of investor assets to Voya Financial Inc (VOYA.N) in exchange for a stake of up to 24% in Voya's investment management unit. This case is being handled by SDNYs Securities and Commodities Fraud Task Force. It all came crashing down in the early, panicked days of COVID-19, when wild market swings upended an options strategy that was marketed as aiming to generate alpha regardless of market waves. During the first quarter of 2020, five Structured Alpha funds lost between 49% and 97% of their value, performance that investors contend in legal filings was far worse than similar strategies. Also known for its insurance operations, Allianz is among Germany's most recognizable brands and an Olympic sponsor. Germanys Allianz has agreed to pay about $6 billion and its U.S. asset management unit will plead guilty to fraud after a group of its multibillion investment funds collapsed amid market turmoil triggered by the coronavirus pandemic in 2020. The bigger the investment gains, the bigger the payday. In another example, defendants smoothed performance data sent to investors by reducing losses on one day from negative 18.2607085709004% to negative 9.2607085709004% -- this time by cutting the number 18 in half. Their lawyers declined immediate comment. 6LinkedIn 8 Email Updates. At Allianz Global Investors U.S., Tournant and his Structured Alpha team were incentivized to pursue outsized returns. Once with more than $11 billion of assets under management, the Structured Alpha funds lost more than $7 billion as COVID-19 roiled markets in February and March 2020. The U.S. Justice Department and Securities and Exchange Commission have opened investigations. Bond-Nelson, at Tournant's direction, also lied to Allianz's in-house lawyers after the company learned about the altered reports and the SEC probe, prosecutors added. Allianz Global Investors also failed to keep watch over Tournant, the New York prosecutors said, as they claimed the firm was asleep on the beat while the fund manager and his co-conspirators lined their own pockets by misleading pension funds. Gregoire Tournant, the former chief investment officer who created and oversaw the now-defunct Structured Alpha funds, was also indicted for fraud, conspiracy and obstruction, while two other former portfolio managers entered related guilty pleas. After the COVID-19 market crash of March 2020 exposed the fraudulent scheme, the strategy lost billions of dollars as a result of AGI US and the portfolio managers misconduct. 3 Ways to Steer Clients Through a Challenging Economy. Two of his colleagues have worked with him since the group's founding. March 25 Allianz announces the liquidation of two hard-hit funds. Aug. 1 Allianz publicly discloses the DOJ investigation and says it could take a financial hit. Share sensitive information only on official, secure websites. Two years after the spectacular collapse of the insurance giants Structured Alpha hedge funds, a low-profile business registered in Florida, 5,000 miles from the Munich headquarters, the shock waves continue to reverberate. To avoid disruptions to these funds and for the protection of the fund investors, the SEC will allow a brief transition period solely to transition these services to another investment adviser.. Marketing material describes the funds as a tested & proven solution and consistently above target. They are marketed as a confident strategy with an insurance spirit.. I previously warned that the Department of Justice would crack down on corporate crime, without regard to size, salary or other privilege, said Deputy Attorney General Lisa O. Monaco in a statement. It turns out that Tournant and other fund managers behind Structured Alpha including longtime colleague Trevor Taylor previously ran into trouble during the 2008 financial crisis, with strategies that also involved options. No risk or compliance personnel at AGI verified, attempted to verify or were responsible for verifying that Tournant and his colleagues were purchasing hedging positions within the range that was represented to investors. He was arrested in Colorado though not by local authorities, according to officials from the Pitkin County Sheriffs Office, Aspen Police Department and Basalt Police Department and subsequently released on $20 million bond, per reporting from, We have faith that the justice system will reject this meritless and ill-considered attemptby the governmentto criminalize the impact of theunprecedented,COVID-. Investors allege Allianz and Structured Alpha abandoned risk controls and turned a challenging situation into a disaster by doubling down on a bad strategy. 2007 Arkansas' pension fund for retired teachers - which would later be the. Todays actions are further evidence that this office is not asleep on the beat and that with our law enforcement partners we will act swiftly to protect investors and bring white collar criminals to justice., These individuals working under the name of Allianz Global Investors, an international management firm, allegedly took advantage of its global recognition when they devised a scheme to mislead investors leading to the loss of billions of dollars, said Inspector-in-Charge Daniel B. Brubaker of the New York Office of the U.S. Instead of employing the usual formula for hedge-fund fees the 2 and 20 mix of management charges and a cut of profits they were compensated for one thing alone: performance. We are shocked by the actions of Greg Tournant and his former colleagues.. By the end of March, Allianz announced it was liquidating two Structured Alpha funds. This case once again demonstrates that even the most sophisticated institutional investors, like pension funds, can become victims of wrongdoing. At Allianz Global Investors U.S., Tournant and his Structured Alpha team were . Gregoire Tournant, 55, Trevor Taylor, 50, and Stephen Bond-Nelson, 51, all were charged with . The SECs complaint seeks permanent injunctions, disgorgement plus interest, and penalties against Tournant, Taylor, and Bond-Nelson. The SEC's complaint, filed in the federal district court in Manhattan, alleges that Structured Alpha's Lead Portfolio Manager, Gregoire P. Tournant, orchestrated the multi-year scheme to mislead investors who invested approximately $11 billion in Structured Alpha, and paid the defendants over $550 million in fees. Get the insurance industry's trusted newsletter, Your email address will not be published. Both are cooperating with the government. Instead of laddering with strike distances from -10% to -25% as represented to investors, the portfolio management team, at Tournants direction, generally purchased cheaper put options with significantly lower strike prices, the SEC complaint notes. A chart containing the names, ages, residences, charges and maximum penalties for the defendants is attached. The U.S. Securities and Exchange Commission filed a parallel civil action today. Those products would even turn a profit when markets went nowhere, according to product marketing materials. read more. It turns out that Tournant and other fund managers behind Structured Alpha including longtime colleague Trevor Taylor previously ran into trouble during the 2008 financial crisis, with strategies that also involved options. Bond-Nelson pled guilty pursuant to an information before U.S. District Judge Paul A. Engelmayer on March 3. Get alerted any time new stories match your search criteria. The multiyear, multibillion-dollar scheme was simple in concept but complicated in practice, especially for those uninitiated with Wall Street. Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. See here for a complete list of exchanges and delays. Feb. 28 A number of big investors file to end their lawsuits. Allianz's settlements with the U.S. Department of Justice and U.S. Securities and Exchange Commission are among the largest in corporate history, and dwarf earlier settlements obtained under President Joe Biden's administration. The SECs investigation was conducted by Jonathan C. Shapiro and James F. Murtha, and supervised by Reid A. Muoio of the Complex Financial Instruments Unit. The U.S. He was arrested in Colorado though not by local authorities, according to officials from the Pitkin County Sheriffs Office, Aspen Police Department and Basalt Police Department and subsequently released on $20 million bond, per reporting from Bloomberg. Disaster struck in 2008 when the collapse of Lehman Brothers rocked global finance, freezing up markets and with them, Innovative Options trades. Those investors included pension funds for teachers, clergy, bus drivers, engineers and others, the vast majority of whom live and work in the United States.. Structured Alphas troubles continued after his departure. It did so by selling options that would pay out for the purchasers, and hurt Structured Alpha, if the S&P 500 plunged, the pension said. The conviction carried a 10-year ban on Allianz Global Investors providing advisory services to U.S.-registered investment funds. Tournant and Taylor declined to comment. March 3 Arkansas drops its lawsuit after settling for $642 million, according to a court document and board meeting minutes. The trade proved disastrous for the Allianz fund managers when the index tanked in late February, and global markets experienced their largest single-week declines since the height of the 2008 financial crisis, the board claimed. Greg looks forward to vigorouslydefending himself in Court against these charges., Allianz told to pay $6bn after SEC charges three execs with fraud over Structured Alpha funds scandal. The industry leader for online information for tax, accounting and finance professionals. In the complaint, the SEC describes Tournant as a resident of Miami, Florida except he also is a resident of Basalt, per reports in the Washington Post and The (Colorado Springs) Gazette. But AGI, the master cop that Tournant claimed was watching over his shoulder, making sure that he adhered to his promises, was asleep on the beat. The board alleged that when the pandemic started fueling wild volatility in February, Structured Alpha made a fateful bet against further market declines. Japan's Nissan Motor on Tuesday unveiled a new electric sport-utility vehicle (SUV) at the Shanghai auto show as it pledged its commitment to the Chinese auto market, which it said was likely to continue to pioneer the rise of electric cars. Allianz is one of the worlds largest financial services companies and one of the worlds largest insurance companies. What goes up, must come down unless a portfolio manager simply fudges the numbers, sometimes simultaneously with comically simple math and a dizzying number of decimals. By December 2019, Structured Alpha had grown to more than $10 billion, according to a person familiar with the matter. At Allianz Global Investors U.S., Tournant and his Structured Alpha team were incentivized to pursue outsized returns. I would enthusiastically recommend him for any computer engineering position." All of the reward, very little risk. In the finger-pointing that followed, some big investors accused the professional consultants they had hired to vet Structured Alpha of ignoring red flags and failing to understand what the funds were doing, according to lawsuits. The scheme alleged was an egregious, long-running and extensive fraud that went undetected for years. Follow us for breaking news and latest updates, The Trend Micro Cybersecurity Knowledge Hub, 10 services and companies to help grow your business, Bank of England wont cut interest rates until Christmas but UK to avoid recession, Shares in Royal Mail owner jump 7 per cent after pay deal with union, UK inflation poised to slip out of the double digits for first time since last summer, Graham Linehan, AKA Glinner, banned from Twitter Again, No firms charged with failure to prevent tax evasion in 6 years heres why. It did so by selling options that would pay out for the purchasers, and hurt Structured Alpha, if the S&P 500 plunged, the pension said. Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology. Mr Tournant turned himself in to authorities in Colorado, where he lives, and faces trial in federal court in New York. Gregoire Tournant, the former chief investment officer who created and oversaw the now-defunct Structured Alpha funds, was also indicted for fraud, conspiracy and obstruction, while two other . Allianz Global Investors U.S. LLC Also Charged with Securities Fraud, Agrees to Plead Guilty. Those investors roughly 114 AGI clients who bought into the Structured Alpha funds, worth $11 billion at its peak represented the pension funds of teachers, bus drivers, subway conductors and clergy members and other charity workers across the country, according to the SEC complaint. 2735 0 obj Megan Tackett is the editor for the Aspen Daily News. "Greg Tournant has been unfairly targeted despite the fact that he was on extendedmedical leave during thesemarket events, and the funds had thrived under his leadership for the previous 14 years. Postal Inspection Service and the Special Agents of the U.S. Attorneys Office for the Southern District of New York investigated this case. Portfolio managers Greg Tournant, Stephen Bond-Nelson and Trevor Taylor no longer work for Allianz Global Investors, a spokesperson has confirmed to Citywire Selector. While the losses are regrettable, they are not the result of any crime. Tournant, with Allianz Global Investors since 2002, founded the so-called Structured Alpha funds in 2005. The department stands ready to keep bringing these kinds of charges to assure the public that no one is above the law.. Tournant himself was heavily invested in the funds he managed and lost money along with clients, according to a person familiar with the matter. In addition, as alleged, in the summer of 2020, after the onset of the pandemic and in order to cover up the fraudulent scheme, Tournant attempted to obstruct an investigation by the U.S. Securities and Exchange Commission (SEC) into the circumstances that led to the losses in March 2020. Instead, U.S. authorities say, Tournant sold lies to investors that cost customers, and now Allianz, billions of dollars, and resulted in a guilty plea to federal charges of securities fraud by Allianz Global Investors US. The U.S. Justice Department and Securities and Exchange Commission have opened investigations. A spokesman declined to comment. Exclusive news, data and analytics for financial market professionals, Reporting by Jody Godoy Tournant faces charges of conspiracy, securities fraud and obstruction of justice charges. There was an error processing your request. Because AGI, a registered investment adviser, failed to provide meaningful oversight, Tournant and his co-conspirators were able to deceive investors about the risks they were taking with their money. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. <>stream Tournant, the chief investment officer at Miami-based Structured Alpha, spent years "smoothing" performance data, lying about hedges against market downturns, and pretending risk managers at Allianz Global Investors US were carefully monitoring his every move, prosecutors charged in an indictment. Taylor and Bond-Nelson both entered guilty pleas, but the man allegedly at the head of the years-long fraud Tournant, former chief investment officer of Allianz is fighting the charges, according to national reports. But Tuesdays indictments are indicative of a harder line from the Justice Department regarding high-level fraud schemes. Tournant, of Basalt, Colorado, surrendered to authorities on Tuesday morning. Tournant surrendered to Postal Inspectors in Denver, Colorado, this morning and is expected to be presented later today. 137 (PAE), Conspiracy to obstruct justice, 18 U.S.C. Mr Tournant and Mr Taylor worked together well over a decade ago when they were at Structured Alphas predecessor, Options Management, which had a similar strategy. Prosecutors said the managers also inflated fund results to boost their pay through performance fees, with Tournant, 55, collecting $13 million in 2019 and becoming his unit's highest or second-highest-paid employee from 2015 to 2019. Mr Tournant, the chief investment officer at Miami-based Structured Alpha, spent years smoothing performance data, lying about hedges against market downturns, and pretending risk managers at Allianz Global Investors US were carefully monitoring his every move, prosecutors charged in an indictment. Bloomberg Intelligence analysts predicted Feb. 18 that the insurers 3.7 billion euro provision wont likely be sufficient and that its legal costs might approach $6 billion. read more. As alleged, Gregoire Tournant and his co-conspirators lied to investors and secretly exposed them to substantial risk in order to line their own pockets and those of their employer, AGI, said U.S. Attorney Damian Williams in a statement. Essentially, the Structured Alpha fund was sold as a bill of goods that would expose investors to the benefits of the S&P 500 index while protecting them from any sort of market crash by. 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