Allianz to pay $6 bln in U.S. fraud case, fund managers charged

NEW YORK/MUNICH, Could 17 (Reuters) – Germany’s Allianz SE (ALVG.DE) agreed to pay greater than $6 billion and its U.S. asset administration unit will plead responsible to prison securities fraud over the collapse of its Structured Alpha funds early within the COVID-19 pandemic.

Allianz’s settlements with the U.S. Division of Justice and U.S. Securities and Trade Fee are among the many largest in company historical past, and dwarf earlier company settlements obtained below President Joe Biden’s administration.

Gregoire Tournant, the previous chief funding officer who created and oversaw the now-defunct Structured Alpha funds, can also be being indicted for fraud, conspiracy and obstruction, whereas two portfolio managers entered associated responsible pleas.

As soon as with greater than $11 billion of property below administration, the Structured Alpha funds misplaced greater than $7 billion because the unfold of COVID-19 roiled markets in February and March 2020.

Prosecutors mentioned Allianz World Traders US LLC misled instructor pension funds, clergy, bus drivers, engineers and different buyers by understating the funds’ dangers, and displayed “important gaps” in its monitoring of the funds. learn extra

Traders have been instructed the funds employed choices that included hedges to guard towards market crashes, however prosecutors mentioned the fund managers repeatedly failed to purchase these hedges.

The managers additionally inflated fund efficiency to spice up their very own pay, gathering 30% of extra returns over related benchmarks as a efficiency payment, prosecutors mentioned.

Tournant’s pay was the best or second-highest in his unit from 2015 to 2019, together with $13 million in 2019, court docket papers present.

At a information convention, U.S. Legal professional Damian Williams in Manhattan mentioned greater than 100,000 buyers have been harmed, and that whereas U.S. prosecutors hardly ever carry prison prices towards firms it was “the fitting factor to do.”

Traders “have been promised a comparatively secure funding with strict danger controls designed to climate a sudden storm, like an enormous collapse within the inventory market,” he mentioned. “These guarantees have been lies…. In the present day is the day for accountability.”

BLAME COVID, DEFENDANT’S LAWYERS SAY

Additionally identified for its insurance coverage operations, Allianz is amongst Germany’s most recognizable manufacturers and an Olympic sponsor.

Its namesake area close to its Munich headquarters, in the meantime, homes Bayern Munich, one in all world’s best-known soccer groups.

Tuesday’s settlement requires Allianz to pay a $2.33 billion prison positive, make $3.24 billion of restitution and forfeit $463 million, court docket papers present.

Williams mentioned the positive was considerably decreased due to the compensation Allianz provided to buyers.

Even so, the payout is near twice the $3.3 billion that the Justice Division collected in company penalties for all of 2021.

Allianz additionally agreed to a $675 million civil positive to settle with the SEC, one in all that regulator’s largest penalties for the reason that implosions of Enron Corp and WorldCom Inc twenty years in the past.

The corporate beforehand put aside sufficient cash to cowl the settlement. Whereas the debacle had pissed off shareholders and prompted some prime Allianz managers to chop their very own pay, the group’s shares closed up 1.7% in Germany after the full payout broadly matched its provisions.

Two former Structured Alpha portfolio managers, Stephen Bond-Nelson and Trevor Taylor, agreed to plead responsible to fraud and conspiracy prices and entered cooperation agreements.

Tournant, who joined Allianz in 2002 and based the funds three years later, surrendered to authorities on Tuesday morning in Denver, and in accordance with his legal professionals will battle the fees.

“Greg Tournant has been unfairly focused,” his legal professionals Seth Levine and Daniel Alonso mentioned in a joint assertion. “We now have religion that the justice system will reject this meritless and ill-considered try by the federal government to criminalize the impression of the unprecedented, COVID-induced market dislocation.”

Attorneys for Bond-Nelson and Taylor declined rapid remark.

VOYA PARTNERSHIP

Allianz’s responsible plea carries a 10-year ban on Allianz World Traders’ offering advisory providers to U.S.-registered funding funds.

Because of this, Allianz agreed to maneuver about $120 billion of investor property to Voya Monetary Inc (VOYA.N), in alternate for as much as a 24% stake in Voya’s funding administration unit.

Regulators mentioned the misconduct included a scenario the place he and Bond-Nelson altered greater than 75 danger studies earlier than sending them to buyers, to scale back projected losses in market-stress situations.

The SEC mentioned projected losses in a single market crash situation have been modified to 4.15% from the precise 42.15%, just by eradicating the “2.”

Allianz’s alleged oversight lapses included a failure to make sure that Tournant was utilizing his promised hedges, although solely folks in his group knew of the misconduct earlier than March 2020.

“No compliance system is ideal, however the controls at AGI did not even stand an opportunity,” Williams mentioned.

Bond-Nelson, at Tournant’s route, additionally lied to Allianz’s in-house legal professionals after the corporate realized in regards to the altered studies and the SEC probe, prosecutors added.

“Sadly, we have seen a latest string of instances during which derivatives and complicated merchandise have harmed buyers throughout market sectors,” SEC Chair Gary Gensler mentioned in a press release.

Traders have additionally filed greater than two dozen lawsuits towards Allianz over the Structured Alpha funds.

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

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