WASHINGTON D.C.: After its U.S. asset management unit pleaded guilty to criminal securities fraud after the collapse of a group of investment funds in the early months of the COVID-19 pandemic, Germany’s Allianz SE has agreed to pay more than $6 billion.
The company’s settlements with the U.S. Department of Justice and U.S. Securities and Exchange Commission are among the largest in corporate history.
The former chief investment officer who created and managed the now-defunct Structured Alpha funds, Gregoire Tournant, 55, was also indicted for fraud, conspiracy and obstruction of justice, while two other former portfolio managers, Stephen Bond-Nelson, 51, and Trevor Taylor, 49, entered guilty pleas.
As COVID-19 affected markets in February and March 2020, the Structured Alpha funds lost more than $7 billion, after once having more than $11 billion of assets under management.
By understating the funds’ risks and having ‘significant gaps’ in its oversight, Allianz Global Investors U.S. LLC was accused of misleading pension funds for teachers, bus drivers, engineers and religious groups.
Fund managers also told investors the funds employed options that included hedges to protect against market crashes, but prosecutors said they repeatedly failed to buy those hedges and inflated fund results to boost their pay through performance fees.
Tournant collected $13 million in 2019 and become his unit’s highest or second-highest-paid employee from 2015 to 2019, officials added.
Investigators also said the misrepresentations began in 2014, helping Allianz generate more than $400 million in net profits.
At a news conference in Manhattan, U.S. Attorney Damian Williams said more than 100,000 investors were harmed, and that while American prosecutors rarely bring criminal charges against companies, it was “the right thing to do.”
Court papers detailed how the settlement calls for Allianz to pay a $2.33 billion criminal fine, make $3.24 billion of restitution and forfeit $463 million.
While Williams said the fine was significantly reduced because of Allianz’s compensation to investors, the payout is close to twice the $3.3 billion in corporate penalties that the Justice Department collected for all of 2021.
Allianz also accepted a $675 million civil fine from the SEC.
The company’s guilty plea carries a 10-year ban on Allianz Global Investors’ providing advisory services to U.S.-registered investment funds.
