An indictment was unsealed today in the Southern District of New York charging Gregoire Tournant, the Chief Investment Officer and co-lead Portfolio Manager for a series of private investment funds managed by Allianz Global Investors U.S. LLC (AGI), with securities fraud, investment adviser fraud and obstruction of justice offenses in connection with a scheme to defraud investors. Washington D.C., May 17, 2022 . Exclusive news, data and analytics for financial market professionals, Reporting by Jonathan Stempel in New York and Tom Sims and Alexander Huebner in Munich Allianz spokesman John Wallace said Mr Tournant and his two lieutenants engaged in isolated but serious wrongdoing that led the company to pay billions of dollars in settlements. The SECs investigation was conducted by Jonathan C. Shapiro and James F. Murtha, and supervised by Reid A. Muoio of the Complex Financial Instruments Unit. 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. 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.. Tournant surrendered to Postal Inspectors in Denver, Colorado, this morning and is expected to be presented later today. Prosecutors said the parent company played no role in the fraud and learnt of it only after the pandemic hit. "Allianz Global Investors admitted to defrauding investors over multiple years, concealing losses and downside risks of a complex strategy, and failing to implement key risk controls," said SEC Chair Gary Gensler. 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? % <>stream In the complaint, the SEC describes Tournant as a resident of Miami, Florida except he also is a resident of Basalt, per reports in the Washington Post and The (Colorado Springs) Gazette. Shares of Allianz closed up 1.7% in Germany, with the payout broadly matching reserves that the company previously set aside. 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 funds writedown will put a costly end to what Allianz once described as a third way for investors to harvest sustainable alpha.. Investor lawsuits and settlements have piled up. Mr Tournant also encouraged Mr Bond-Nelson, 51, to give false testimony to the agency. Tournant lawyers said: 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., 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 losses resulting from these market events were suffered by sophisticated institutional investors including Greg himself who had a considerable investment in the fund. 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. 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. New York City | He was a hedge fund manager supposedly under the watchful eye of a master cop an Allianz unit that policed his every move. Success! 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. For the discerning eye, the latter number is exactly half of the former. Structured Alpha 1000 and Structured Alpha 1000 Plus targeted returns of 10 per cent above three-month US Treasury bills. Follow us for breaking news and latest updates, The Trend Micro Cybersecurity Knowledge Hub, 10 services and companies to help grow your business, Bank of England wont cut interest rates until Christmas but UK to avoid recession, Shares in Royal Mail owner jump 7 per cent after pay deal with union, UK inflation poised to slip out of the double digits for first time since last summer, Graham Linehan, AKA Glinner, banned from Twitter Again, No firms charged with failure to prevent tax evasion in 6 years heres why. "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. While regrettable, the losses are not the result of any crime, they said. Investors allege Allianz and Structured Alpha abandoned risk controls and turned a challenging situation into a disaster by doubling down on a bad strategy. The litigation will be led by Timothy K. Halloran under the supervision of Melissa J. Armstrong. ", Investors "were promised a relatively safe investment with strict risk controls designed to weather a sudden storm, like a massive collapse in the stock market," he said. They face long prison terms but could get far less time for their cooperation. 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. The committee claimed Aon touted Structured Alpha as late as 2019 as one of its "highest conviction strategies," even as it failed to properly monitor the Allianz funds or find fraud under its nose. It expects a final agreement in the coming weeks. Those products would even turn a profit when markets went nowhere, according to product marketing materials. An Allianz lawyer entered the guilty plea at a hearing before U.S. District Judge Loretta Preska in Manhattan. Postal Inspection Service and the Special Agents of the U.S. Attorneys Office for the Southern District of New York investigated this case. Investors allege they lost billions of dollars as a result of the collapse of Allianz's Structured Alpha hedge funds, which also prompted probes by U.S. regulators. The bigger the investment gains, the bigger the payday. January Global stock markets plunge amid fears of the spreading coronavirus. And when the storm came in March 2020, when the COVID-19 crash hit, these investors got soaked and lost billions. At Allianz Global Investors U.S., Tournant and his Structured Alpha team were . 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, Williams continued. The portfolio managers then used manipulated numbers to justify exorbitant fees to line their own pockets to the tune of $550 million between 2014 and 2020. Postal Inspection Service. When a story breaks, your email dings. 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. Tournant and Taylor declined to comment. The Aspen Daily News has chronicled Tournants real estate dealings with Snowmass Club condominium properties in, Tournant faces charges of conspiracy, securities fraud and obstruction of justice charges. Greg Tournant, Stephen Bond-Nelson and Trevor Taylor no longer work for AllianzGI, a spokesperson has confirmed to Citywire Selector. Allianz SE has agreed to pay more than $6 billion in restitution through a settlement with federal prosecutors and AGI U.S. will plead guilty to criminal securities fraud. 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. 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. 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. 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. 2735 0 obj Two of his top lieutenants, Stephen Bond-Nelson and Trevor Taylor, agreed to plead guilty and are cooperating with prosecutors. Secure .gov websites use HTTPS A conference has been scheduled for today at 3:00 p.m. before U.S. District Court Judge Loretta A. Preska, at which time AGI is expected to plead guilty to an information pursuant to the agreement. 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. See here for a complete list of exchanges and delays. Disaster struck in 2008 when the collapse of Lehman Brothers rocked global finance, freezing up markets and with them, Innovative Options trades. "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. Mr Tournant, the chief investment officer at Miami-based Structured Alpha, spent years smoothing performance data, lying about hedges against market downturns, and pretending risk managers at Allianz Global Investors US were carefully monitoring his every move, prosecutors charged in an indictment. To avoid disruptions to these funds and for the protection of the fund investors, the SEC will allow a brief transition period solely to transition these services to another investment adviser. The demise of the Structured Alpha funds is just the latest illustration of the outsized damage an obscure trading operation can wreak on an A-list financial institution. 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. "Our strategies are not race cars looking to speed their way to high returns. 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. Tournant, who is fighting the charges, was ordered released on a $20 million bond at a hearing Tuesday afternoon, where his lawyer told the judge that prosecutors had been investigating for more than a year. March 11, 2022 at 01:54 PM Error! Required fields are marked *. To avoid disruptions to these funds and for the protection of the fund investors, the SEC will allow a brief transition period solely to transition these services to another investment adviser.. A dual U.S.-French citizen, he arrived at Allianz Global Investors in the early 2000s by way of Oppenheimer Capital. Those funds ultimately collapsed, leading to billions of dollars of investor losses. Essentially, the Structured Alpha fund was sold as a bill of goods that would expose investors to the benefits of the S&P 500 index while protecting them from any sort of market crash by selling put options to hedge against a downturn. According to the 54-page SEC complaint filed with the Department of Justice which did not return an inquiry for comment by presstime Tuesday the U.S. subsidiary of the Germany-headquartered Allianz SE (among the worlds largest financial-advisory and insurance companies) essentially cost mostly American investors more than $5 billion in March 2020. Prosecutors and regulators revealed new details of how they say Mr Tournant, Mr Taylor, and Mr Bond-Nelson duped investors, consultants, colleagues and auditors. Behind Allianzs $4B Fund Blowup, Red Flags and Fat Fees, Portfolio > Alternative Investments > Hedge Funds, By Germanys Allianz has agreed to pay about $6 billion and its U.S. asset management unit will plead guilty to fraud after a group of its multibillion investment funds collapsed amid market turmoil triggered by the coronavirus pandemic in 2020. Allianz Shares Sink on DOJ Investigation Into Structured Alpha Funds Hedges meant to protect investors against market falls didn't perform during March 2020 panic Allianz has been sued by. The SEC's complaint, filed in the U.S. District Court in Manhattan, alleges that Structured Alpha's lead portfolio manager, Gregoire P. Tournant, orchestrated the multi-year scheme to mislead investors who invested approximately $11 billion in Structured Alpha. Structured Alphas troubles continued after his departure. Thats according to the Arkansas Teacher Retirement System, which in February settled a suit over its Structured Alpha losses for $643 million. Except, according to the allegations, Tournant and his portfolio co-managers (Taylor and Bond-Nelson entered guilty pleas in early March and are cooperating with the federal government) smoothed over numbers when they werent outright lying about them, often buying the index but compromising on the put options promised. MAY 17 The DOJ announces Allianz has agreed to pay about $6 billion and its U.S. asset management unit will plead guilty to fraud. Thats the allegation both the U.S. Justice Department and the U.S. Security and Exchange Commission make in an indictment released Tuesday. 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 . The industry leader for online information for tax, accounting and finance professionals. In a 2016 video reviewed by Reuters, Tournant likened Structured Alpha's strategy to insurance. 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. 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. They included dozens of public and private pension plans for the likes of Blue Cross & Blue Shield and New Yorks Metropolitan Transportation Authority. The conviction carried a 10-year ban on Allianz Global Investors providing advisory services to U.S.-registered investment funds. 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. March 25 Allianz announces the liquidation of two hard-hit 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. U.S. Attorney Damian Williams for the Southern District of New York and Inspector-in-Charge Daniel B. Brubaker of the New York Office of the U.S. Its every investors dream: Make money when markets go up, and when markets go down, and even when markets go practically nowhere. Disaster struck in 2008 when the collapse of Lehman Brothers rocked global finance, freezing up markets and with them, Innovative Options trades. 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