Feb. 17 Allianz says it will set aside 3.7 billion euros ($3.90 billion) to deal with investigations and lawsuits. Tournant and Taylor prospered at Allianz during the long bull market that followed the Great Recession. $L% x-GU f*na"WHn^>EmI`*f@eKh rH}={q3P3B"27Uh*_.~IJ@2H_,@S.)(|s vwA\r[9S8R`'ow\5&Lx`LUC^-rHAeh0x*od{dt" {+PsCBjT0b1F|=]dK2D"`7e >a\!M/69TS.lKk`4.Gz6NEfI:LX.wS06;.>k"j7v1r.>0t`1VJ>?=[yE 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. Former colleagues have turned on him, as has Allianz. Under that oversight, Allianz told CMERS that it had prepared the Funds for "highly unlikely 'what if' scenarios" by "developing mathematically pre-established portfolio 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. Allianz also accepted a $675 million civil fine from by the SEC, one of that regulator's largest penalties since Enron Corp and WorldCom Inc imploded two decades ago. Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. These funds were marketed largely to institutional investors, including pension funds for workers all across America. 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. Thats according to the Arkansas Teacher Retirement System, which in February settled a suit over its Structured Alpha losses for $643 million. 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. When a story breaks, your email dings. In addition, the complaint seeks an officer and director bar against Tournant. Allianz is still grappling with the fallout. 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. Two of his top lieutenants, Stephen Bond-Nelson and Trevor Taylor, agreed to plead guilty and are cooperating with prosecutors. Postal Inspection Service and the Special Agents of the U.S. Attorneys Office for the Southern District of New York investigated this case. Another investor, the board of a pension fund run by the International Brotherhood of Electrical Workers, filed a lawsuit in 2020 that purported to identify what went wrong. g4e#tnvP]AI]p8abg\YFf\mWo5z@#:1S1f7+woI#6 {QO1DuFR_/ a@P'6{WB@ujKalGVW6jA5:!R,/*jn Mr Bond-Nelson lied repeatedly to SEC investigators during his testimony in May last year before taking a bathroom break and not returning. The result was a massive fraud that cost investors $US7 billion ($10 billion), they say. By the end of March, Allianz announced it was liquidating two Structured Alpha funds. The litigation will be led by Timothy K. Halloran under the supervision of Melissa J. Armstrong. A dual U.S.-French citizen, he arrived at Allianz Global Investors in the early 2000s by way of Oppenheimer Capital. guidelines." According to Tournant, Allianz SE was a "master cop" that closely monitored the Structured Alpha Funds' "every single move." 11. Prosecutors say that although Mr Tournant assured big investors safety was his top priority, he secretly took huge, undisclosed risks. 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. Editing by Chizu Nomiyama, Tomasz Janowski and Matthew Lewis, US arrests two for setting up Chinese 'secret police station' in New York, UBS makes changes to buyback programme following Credit Suisse takeover, HSBC shareholder Ping An to vote for bank's break-up at annual meeting -source, US financial institutions hit by deposit flight as clients seek higher returns, Nissan unveils new EV for China as it aims to up game in no. 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. While Mr Tournants funds might have sounded too good to be true, Allianz Global Investors US assured clients that its risk-management system had three lines of defence. He earned a grade of A+, which is not easy in my class. "Unfortunately, we've seen a recent string of cases in which derivatives and complex products have harmed investors across market sectors," SEC Chair Gary Gensler said in a statement. Thats according to the Arkansas Teacher Retirement System, which in February settled a suit over its Structured Alpha losses for $643 million. 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. Portfolio managers Greg Tournant, Stephen Bond-Nelson and Trevor Taylor no longer work for Allianz Global Investors, a spokesperson has confirmed to Citywire Selector. Aug. 7 Oliver Baete, Allianz chief executive officer describes a horrible week and concedes not everything was perfect in the fund management.. But inside Allianz SE, where a handful of hedge fund managers claimed they could do just that, few grasped how wrong that dream could go. The comments come after Allianzs $11bn Structured Alpha funds racked up $6bn in losses at the start of the pandemic, as its risky options strategy faltered in the face of stock market volatility at the start of Covid-19. % And those lower strike prices provided less protection to investors in the event of a short-term market drop.. 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. 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. (Reporting by Tom Sims; editing by Tomasz Janowski). June 30 The Arkansas funds board votes to sue Allianz. Tournant, of Basalt, Colorado, surrendered to authorities on Tuesday morning. Deep-pocketed investors piled in. Automobile Diminished Value: Is THAT Covered. Taylor and Bond-Nelson also agreed to associational and penny stock bars. Tournant, with Allianz Global Investors since 2002, founded the so-called Structured Alpha funds in 2005. Copyright 2023 by Wells Media Group, Inc. Allianz Fires 2 Asset Managers Who Ran Group of Collapsed Investment Funds, Allianz Sets Aside $4.2B to Handle Probes, Lawsuits After Collapse of Investment Funds, NFL Prospect Injured in Fatal Car Crash in Alabama, Global Insured Losses Estimated at $15B in Q1, With Economic Price Tag of $63B: Aon, Miami Homeowner Charged with Defrauding Citizens by Claiming Old Damage, Florida Roofing Company Owners Plead Guilty to More Than $1M in Tax Evasion. July 21 Allianz publishes a paper saying that losses were not the result of any failure in the portfolios investment strategy or risk management processes. It has since been removed from the web. And when the storm came in March 2020, when the COVID-19 crash hit, these investors got soaked and lost billions. They included dozens of public and private pension plans for the likes of Blue Cross & Blue Shield and New Yorks Metropolitan Transportation Authority. 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 . All rights reserved. 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. 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 U.S. Justice Department and Securities and Exchange Commission have opened investigations. Investors have also filed more than two dozen lawsuits against Allianz over the Structured Alpha funds. Share sensitive information only on official, secure websites. An email has been sent to with a link to confirm list signup. April 6 The Arkansas funds board votes to exit the Allianz funds and park the proceeds with BlackRock. But inside Allianz SE, where a handful of hedge fund managers claimed they could do just that, few grasped how wrong that dream could go. The 55-year-old investment manager now faces up to 40 years in prison on five separate counts of fraud and conspiracy to obstruct justice. He was at the top of the class, and his work was excellent in all respects. 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. 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. At a news conference, U.S. Attorney Damian Williams in Manhattan 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. The U.S. Justice Department and Securities and Exchange Commission have opened investigations. 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. 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. French-American citizen Gregoire Tournant earned $60m from his role as Chief Investment Officer at Allianz, as he lied to investors and misled them as to the risk of investing in the Structured Alpha funds. May The U.S. Department of Justice approaches Allianz for information on the funds. Mr Tournant also encouraged Mr Bond-Nelson, 51, to give false testimony to the agency. Notably, as markets got more volatile, the funds could get more profitable, Allianz told clients, while warning that all investments entail risks. Listen to free podcasts to get the info you need to solve business challenges! "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. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. News on Tuesday that the US unit of the German insurance giant was admitting guilt over the collapse of its Structured Alpha group of hedge funds leaves many questions unanswered, including a big one: Will Mr Tournant, who had told investors Structured Alpha would do well whether markets went up or down, end up in prison? The insurer warned last month that ongoing probes by the Justice Department and SEC are at a sensitive stage and it couldnt yet predict the final price tag from regulatory settlements and private litigation. French-American citizen Gregoire Tournant earned $60m from his role as Chief Investment Officer at Allianz, as he lied to investors and misled them as to the risk of investing in the Structured. Investigators said the misrepresentations began in 2014, and helped Allianz generate more than $400 million of net profit. Share & Print. Allianz subsequently moved about $120 billion of investor assets to Voya Financial Inc (VOYA.N) in exchange for a 24% stake in Voya's asset management business. 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. "We have faith that the justice system will reject this meritless and ill-considered attemptby the governmentto criminalize the impact of theunprecedented,COVID-induced market dislocation of March 2020," Tournant's counsel, Seth Levine and Daniel Alonso, said in a joint statement on behalf of their client, who they say also had investment in the fund. But Tuesdays indictments are indicative of a harder line from the Justice Department regarding high-level fraud schemes. The German company earlier . Reports 2021 profit was the lowest since 2013. 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 occurred at a very profitable component of AGI one that accounted for 25% of AGIs revenue in recent years, which amounted to hundreds of millions of dollars. 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. 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. Valuation, Fundamentals, Momentum: The Case for Mid-Cap Value Stocks, Bond Fund Yields: What Investors Need to Know, How to Build Your Ultimate Marketing Plan. 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. Two other executives with the funds agreed to plead guilty and are cooperating with authorities. The board alleged that when the pandemic started fueling wild volatility in February, Structured Alpha made a fateful bet against further market declines. 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. Disaster struck in 2008 when the collapse of Lehman Brothers rocked global finance, freezing up markets and with them, Innovative Options trades. Lead manager Greg Tournant joined Allianz in 2002 and started the structured products group in 2005. 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. The settlement calls for Allianz to pay a $2.33 billion criminal fine, make $3.24 billion of restitution and forfeit $463 million, court papers show. Allianz's U.S. asset management arm establishes the so-called Structured Alpha funds under manager Greg Tournant. Copyright 2022 Bloomberg. The multiyear, multibillion-dollar scheme was simple in concept but complicated in practice, especially for those uninitiated with Wall Street. 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. n=t gM We are shocked by the actions of Greg Tournant and his former colleagues.. These institutional investors included, among others, pension funds for teachers in Arkansas, laborers in Alaska, bus drivers and subway conductors in New York City, as well as religious organizations, engineers, and other individuals, universities and charitable organizations across the United States. Unfortunately, weve seen a recent string of cases in which derivatives and complex products have harmed investors across market sectors. Why AI tools, like GPT, are now at the frontline of the Citys talent war? 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. Four billion dollars wrong so far, with outside estimates that it could grow much larger. Allianz on Tuesday announced plans to sell the bulk of the US piece of its Allianz Global Investors business to Voya Financial. Think Archegos, Long-Term Capital Management and the hedge funds whose collapse led to the demise of Bear Stearns. March 25 Allianz announces the liquidation of two hard-hit funds. 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.. Both are cooperating with the government. But in late 2015, as the cost of those promised hedges increased, Tournant decided to lie and secretly buy cheaper hedges that provided much less protection to investors. All these months later, the big question remains: How could a few obscure money managers people on no ones list of hedge-fund luminaries blow such a huge hole in Allianz, which traces its history to the days of Bismarck? Tournant surrendered to Postal Inspectors in Denver, Colorado, this morning and is expected to be presented later today. 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