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In a $6 billion fraud settlement, an Allianz unit pleads guilty

Allianz Global Investors US (AGI) and three former portfolio managers were charged on Tuesday with deceiving investors about a complex options trading strategy and forging documents to hide the scheme, which resulted in multibillion-dollar losses.

AGI admitted to the wrongdoing and agreed to pay the Securities and Exchange Commission more than $1 billion to settle fraud charges (SEC). The entities, along with their parent company, Allianz SE of Germany, will pay more than $5 billion in restitution to victims.

According to an SEC press release, "Structured Alpha," the fraudulent investing strategy AGI marketed and sold to approximately 114 institutional investors, was exposed after the Covid-19 market crash in March 2020.

According to the complaint, Gregoire Tournant, Structured Alpha's lead portfolio manager, concocted the scheme from January 2016 to March 2020, deceiving investors such as pension funds for teachers, clergy, bus drivers, engineers, and others. According to the complaint, the fund grew to $11 billion in total investment during that time, helping Tourant and his associates earn over $550 million in fees.

The complaint also claims that portfolio managers Trevor Taylor and Stephen Bond-Nelson, who both eventually cooperated with the SEC's investigation, assisted Tournant in manipulating financial reports and other information provided to investors to hide the true risk and performance of Structured Alpha.

Tournant, Taylor, and Bond-Nelson were accused of allegedly manipulating metrics to provide risk assessments in the event of a market crash, with brazen examples of how they "smoothed" performance data sent to investors by reducing losses on one day from negative 18.3 percent to negative 9.3 percent.

According to a press release, the US Attorney's Office for the Southern District of New York announced criminal charges against Tournant, as well as subsequent guilty pleas from Taylor and Bond-Nelson.

According to the press release, "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."

The Department of Justice (DOJ) announced that AGI will plead guilty to securities fraud and pay more than $3 billion in restitution to victims, a $2.3 million criminal fine, and forfeit $463 million to the government.

U.S. Attorney Damian Williams praised Allianz SE for compensating the scam victims.

"No compliance system is perfect, but the controls at AGI didn’t even stand a chance to protect or prevent a cyber fraud. And of course, AGI did not self-report this fraud. They didn’t even discover it. I want to specifically commend Allianz and the leaders of Allianz for their willingness to do the right thing and compensate the innocent victims of the fraudulent scheme. That cooperation and the willingness to compensate victims are factors that led to a significant reduction in the fine that AGI will be required to pay," said Williams in a press conference.

Allianz SE acknowledged AGI's guilty pleas in a statement, but said the fraud was limited to a "handful of individuals" who are no longer employed by the company.

"TThe DOJ’s investigation did not otherwise find any knowledge of, or participation in, the misconduct at Allianz SE or any other entity of the Allianz Group," the company stated.

AGI agreed to a cease-and-desist order, a censure, and payments of $315.2 million in disgorgement, $34 million in prejudgment interest, and a $675 million civil penalty for violating federal securities laws. Following a transition period, the company is also barred from providing advisory services to US registered investment funds for the next ten years.

The SEC is suing Tournant, Taylor, and Bond-Nelson for permanent injunctions, disgorgement plus interest, and penalties. Tournant is also facing an officer and director bar, according to the complaint. Taylor and Bond-Nelson agreed to partial judgments in which they agreed to monetary penalties to be determined by the court at a later date. Associational and penny stock bars were also agreed upon by Taylor and Bond-Nelson.

The settlements must be approved by the courts.



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