Other corporations should take note that the results here are driven in part by the fact that this company failed to self-report their crimes. Allianz also assured investors that it was backstopping Structured Alphas risk-management processes. It further alleges that, with assistance from Co-Lead Portfolio Manager, Trevor L. Taylor, and Portfolio Manager, Stephen G. Bond-Nelson, Tournant manipulated numerous financial reports and other information provided to investors to conceal the magnitude of Structured Alphas true risk and the funds actual performance. These funds were marketed largely to institutional investors, including pension funds for workers all across America. Tournant, the former chief investment officer who created and oversaw Allianz's now-defunct Structured Alpha funds, was indicted in May on fraud, conspiracy and obstruction charges and pleaded not guilty. A spokesman declined to comment. Additional reporting by Luc Cohen in New York Create an alert to follow a developing story, keep current on a competitor, or monitor industry news. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. All quotes delayed a minimum of 15 minutes. 137 (PAE), Conspiracy to obstruct justice, 18 U.S.C. It fired Tournant and another fund manager, Stephen Bond-Nelson, in December, accusing them of violating compliance policies, according to public records filed with the Financial Industry Regulatory Authority. Exclusive news, data and analytics for financial market professionals, Reporting by Jonathan Stempel in New York and Tom Sims and Alexander Huebner in Munich 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. 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. Reuters, the news and media division of Thomson Reuters, is the worlds largest multimedia news provider, reaching billions of people worldwide every day. Pensions funds for so many retirees, religious organizations and essential workers from laborers in Alaska, to teachers in Arkansas, to bus drivers and subway conductors here in New York City invested with AGI because they were promised a relatively safe investment with strict risk controls. AGI US admitted that its conduct violated the federal securities laws and agreed to a cease-and-desist order, a censure and payment of $315.2 million in disgorgement, $34 million in prejudgment interest, and a $675 million civil penalty, a portion of which will be distributed to certain investors, with the amount of disgorgement and prejudgment interest deemed satisfied by amounts it paid to the U.S. Department of Justice as part of an integrated, global resolution. The SECs complaint, filed in the federal district court in Manhattan, alleges that Structured Alphas 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. At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. 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. "Our strategies are not race cars looking to speed their way to high returns. Prosecutors said the parent company played no role in the fraud and learnt of it only after the pandemic hit. According to an initial report by Bloomberg, the trio used to manage structured alpha hedge funds, but all left the company in December 2021, according to company filings. The U.S. Securities and Exchange Commission filed a parallel civil action today. At the same time, the firm has argued that its clients were sophisticated investors who knew what they were getting into. Secure .gov websites use HTTPS 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. When the 2020 COVID-related market volatility revealed that AGI US and the defendants had misled investors about the funds level of risk, the fund suffered catastrophic losses and investors lost billions; the defendants all the while profited from their deception. The funds once had more than $11 billion of assets under management, but lost more than $7 billion as COVID-19 roiled markets in February and March 2020. 1 Twitter 2 Facebook 3RSS 4YouTube Greg Tournant, Stephen Bond-Nelson and Trevor Taylor no longer work for AllianzGI, a spokesperson has confirmed to Citywire Selector. At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. While they were able to solicit over $11 billion in investments by the end of 2019 and earn over $550 million in fees as a result of their lies, they lost over $5 billion in investor funds when the market volatility of March 2020 exposed the true risk of their products," said Gurbir S. Grewal, Director of the SECs Division of Enforcement. This case is being handled by SDNYs Securities and Commodities Fraud Task Force. Allianz was confident enough in Tournants team that it let them charge a performance fee alone of 25% to 30% of net capital appreciation above a benchmark. 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. It expects a final agreement in the coming weeks. Subscribe to the City A.M. newsletter to have our top stories delivered directly to your inbox. Taylor pleaded guilty pursuant to an information before U.S. District Judge Denise Cote on March 8. 275.206(4)-8 (Count Four), Conspiracy to obstruct justice, 18 U.S.C. Allianz, which also owns bond powerhouse Pacific Investment Management Co., has resolved some of its legal woes, including a February settlement with a majority of investors for undisclosed terms. For instance, say an investment fund actually performs with a -30.8197078741882% return, but the investor is told that the actual number is -15.4098539370941882% as Allianz Global Investors U.S. LLC told its investors in a month-end March 2018 income deposit security, or IDS, report. Roman Frenkel was a first-hand witness to the Structured Alpha teams earlier failure when he worked at Innovative Options Management, the small Miami firm that Taylor founded and Tournant helped run briefly while continuing to manage money for Allianz. Instead of being part of the companys planned expansion to waterfront offices, Frenkel ended up helping liquidate the business. Allianz Global Investors US LLC was accused of misleading pension funds for teachers, bus drivers, engineers, religious groups and others by understating the funds' risks, and having "significant gaps" in its oversight. Taylor and Bond-Nelson have agreed to the entry of partial judgments against them in which they consent to injunctive relief with monetary relief to be determined by the court in the future. Thats the allegation both the U.S. Justice Department and the U.S. Security and Exchange Commission make in an indictment released Tuesday. Washington D.C., May 17, 2022 . 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. Unfortunately, weve seen a recent string of cases in which derivatives and complex products have harmed investors across market sectors. The cooperation of Mr Taylor and Mr Bond-Nelson was not assured. 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 bigger the investment gains, the bigger the payday. The result was a massive fraud that cost investors $US7 billion ($10 billion), they say. 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. The answer that emerges from court filings, Allianz marketing materials and people with first-hand knowledge of Structured Alphas investment strategy is a classic story of Wall Street salesmanship and greed, and a tale for these volatile times. performed such egregious manipulations of the numbers when it came to selling and managing a fund known as Structured Alpha. Disaster struck in 2008 when the collapse of Lehman Brothers rocked global finance, freezing up markets and with them, Innovative Options trades. Mr Tournants group used equity-based options to market what he said was an all-weather strategy that would protect investors from losses in good times and bad. 371 (Count Five), United States v. Trevor Taylor, 22 Cr. Postal Inspection Service and the Special Agents of the U.S. Attorneys Office for the Southern District of New York investigated this case. 80b-6(4) & 80b-17, 17 C.F.R. Lead manager Greg Tournant joined Allianz in 2002 and started the structured products group in 2005. The transition period will be ten weeks for the US mutual funds that AGI US sub-advises and four months for the US closed-end funds that AGI US advises. While the losses are regrettable, they are not the result of any crime., The Governments attempt to characterize them as such is not only unfairly damaging to Gregs reputation and livelihood, but extremely dangerous to the market as a whole. 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.. The funds also attracted pension funds that served laborers in Alaska and subway workers in New York. A dual U.S.-French citizen, he arrived at Allianz Global Investors in the early 2000s by way of Oppenheimer Capital. As a consequence of the guilty plea, AGI US is automatically and immediately disqualified from providing advisory services to U.S.-registered investment funds for the next 10 years, and will exit the business of conducting these fund services, the SEC press release explains. Required fields are marked *. Wake up to today's headlines in your inbox. 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. 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. March 4 Allianzs annual report discloses that Allianz Chief Executive Oliver Baete earned 9% more in 2021 despite a cut in his bonus for the funds saga. Allianz's U.S. asset management arm establishes the so-called Structured Alpha funds under manager Greg Tournant. By December 2019, Structured Alpha had grown to more than $10 billion, according to a person familiar with the matter. 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. July 20 Arkansas suit is filed with the U.S. Southern District of New York claiming $774 million in losses. Sept. 10 Reuters reports that the DOJ was looking at possible misconduct by fund managers and misrepresentation of risk to investors. Arkansas Structured Alpha holdings reach a market value of $1.6 billion at the end of 2019, a significant portion of the $18.3 billion fund. They included dozens of public and private pension plans for the likes of Blue Cross & Blue Shield and New Yorks Metropolitan Transportation Authority. They were marketed in particular to typically conservative U.S. pension funds, from those . Even when, in 2017, internal auditors uncovered red flags, they assigned product specialists whose pay was tied to the groups performance to follow up. Tournant himself was heavily invested in the funds he managed and lost money along with clients, according to a person familiar with the matter. A chart containing the names, ages, residences, charges and maximum penalties for the defendants is attached. The case has been assigned to U.S. District Judge Colleen McMahon. Id like to thank and commend our staff for their excellent forensic work that uncovered this fraud and held the wrongdoers accountable.". Greg Tournant was a hedge-fund manager supposedly under the watchful eye of a "master cop"an Allianz SE unit that policed his every move. Please tell us what you liked about it. Tournant, of Basalt, Colorado, surrendered to authorities on Tuesday morning. Investors were told the funds employed options that included hedges to protect against market crashes, but prosecutors said fund managers repeatedly failed to buy those hedges. As alleged, Tournant and his co-conspirators also provided investors with altered documents that were sent to investors to hide the true riskiness of the funds investments, including that they were buying cheaper hedges. While Allianz made no secret of this arrangement, angry clients would later claim it was a recipe for bigger risks. March 27 Allianz says it remains committed to the fund franchise and the remaining funds are now well positioned, but Aon issues another report recommending a sell.. Tournant and Taylor declined to comment. May The U.S. Department of Justice approaches Allianz for information on the funds. According to an initial report by Bloomberg, the trio used to manage the Structured Alpha funds, but all left the company in December 2021, per company filings. Regulators said the misconduct included when Tournant and Bond-Nelson altered more than 75 risk reports before sending them to investors. End of the road: Why More Than will no longer sell car insurance as insurer RSA quits market, HSBC, SocGen and BNP Paribas raided in France as part of cum cum tax probe, Top City firms pledge to hike contributions to employees pensions pots amid concerns over looming savings crunch. Aug. 7 Oliver Baete, Allianz chief executive officer describes a horrible week and concedes not everything was perfect in the fund management.. 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. Chief Executive Officer Oliver Baete expressed regret in February for Structured Alphas losses and said they will have a significant impact on the compensation of its directors. These funds were marketed largely to institutional investors, including pension funds for workers all across America. This material may not be published, broadcast, rewritten, or redistributed. The industry leader for online information for tax, accounting and finance professionals. Instead of employing the usual formula for hedge-fund fees the "2 and. Two other Allianz execs pleaded guilty to playing a part in the scheme and are now cooperating with the governments investigation. Also known for its insurance operations, Allianz is among Germany's most recognizable brands and an Olympic sponsor. But prosecutors said it was barely functional. 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. n=t gM Please tell us what we can do to improve this article. surge" that had occurred in February 2018, Allianz said that "Structured Alpha's option portfolio is positioned for a strong improvement in the event of another February 2018-type move." Unfortunately for ATRS, Allianz departed from the Alpha Funds' investment mandate and disregarded the risk management protocols it was required to . read more. The fund abandoned the promised hedging strategy and instead began to purchase cheaper hedges that were further out of the money, and therefore less protective in the event of a market crash, according to the indictment. They included dozens of public and private pension plans for the likes of Blue Cross & Blue Shield and New Yorks Metropolitan Transportation Authority. 80b-6 & 80b-17 (Count Three), Investment adviser fraud, 15 U.S.C. Here is timeline of key events in the saga, based on court documents, corporate disclosures, archived websites, public statements, and minutes of investor meetings: Allianzs U.S. asset management arm establishes the so-called Structured Alpha funds under manager Greg Tournant. Those products would even turn a profit when markets went nowhere, according to product marketing materials. Mr Tournant also encouraged Mr Bond-Nelson, 51, to give false testimony to the agency. Allianz Sets Aside $4.2B to Handle Probes, Lawsuits After Collapse of Investment Funds. Tournant, the former chief investment officer who created and oversaw Allianz's now-defunct Structured Alpha funds, was indicted in May on fraud, conspiracy and obstruction charges and. 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