After concealing the risks faced by a set of its fund managers that crashed during global market fluctuations, an Allianz Structured Alpha (SE) unit will plead guilty to wrongdoing and has agreed to pay $5.8 billion.
Allianz Global Investors US, a fully owned subsidiary of the German insurer, shall admit guilt to a federal charge of securities crime and pay approximately $5B to claimants and its holding company. According to the corporation, the full payout, which includes a $1B penalty to the Securities and Exchange Commission, is funded by protections already in place.
Interestingly Allianz is planning to sell a big proportion of the US entity of Allianz Global Investors operations to Voya Financial Inc.
Former structured Alpha Funds co-portfolio manager and chief investment officer Gregoire Tournant was arrested on Tuesday. According to Manhattan United States Attorney Damian Williams, he was indicted individually for his part in the claimed plot to mislead investors. As per the prosecutors, Tournant plus two unidentified portfolio managers exaggerated the extent of independent monitoring AGI provided, exaggerated hedging as well as other risk management methods, and manipulated papers to mask the funds’ riskiness.
As per Tournant’s charge, as a consequence of this conspiracy to defraud, clients’ money was subjected to greater risk than guaranteed. They were denied understanding of the genuine hazards to which the investments were subjected.
The agreement requires the company to relinquish $463M and also pay $3.2B in reparations and a $2.3B fine to the scammed victims. It’ll be given a $1.9 billion credit in compensation already awarded to victims.
Allianz had put aside $5.9B to settle the fund-related litigation and government investigations. According to the company, the costs constitute a “reasonable approximation” of the risk. An Allianz representative said that the provisions include all costs published Tuesday.
The forfeiture payments become due on Wednesday, with AGI expected to make restitution payments in seven days an account held and dispersed to victims.
According to the indictment, nobody at Allianz or AGI US was ensuring that Tournant, as well as other coworkers, were clearly following the investing strategy disclosed to clients. For instance, n No compliance or risk personnel at AGI US authenticated, tried to authenticate, or were able to verify that the hedge managers were buying hedging positions as per the range presented to buyers or complying with agreed-upon mitigation strategies, such as those explicitly pledged to the funds’ biggest investor.
As per the court filing, Tournant had informed investors that AGI was among the most conservative and leading insurance firms globally. He also told them that he was monitoring each position taken as a “master cop.”
Although the Structured Alpha hedging funds were created to shield against a financial collapse, they took a beating during the pandemic’s early days. For instance, 5 Florida-headquartered funds shed 49%-97% of their worth in the Q1 2020 due to contentious options strategy. Hundreds of billions of dollars were lost, according to investors. In March 2020, Allianz sold two of these assets and had since been winding down others.
Suing Allianz, retirement funds, and some investors believe that the situation was significantly worse than funds affected hard at the beginning of the COVID-19 outbreak. The firm broke its fiduciary duties by misrepresenting how Structured Alpha invested its money.
Obstruction Attempt
Tournant is also accused of attempting to impede a federal investigation, according to prosecutors. In or around the summer of 2020, shortly after the pandemic began and in an attempt to avert discovery of the scheme to defraud, Tournant, the accused, impeded an inquiry by the United States Securities and Exchange Commission (the ‘SEC’) into series of events that resulted to the liabilities in March 2020. Tournant urged fund manager Stephen Bond-Nelson to lie to SEC on numerous occasions.
As per the accusation, the vehicles were touted as “offering wide market exposures while keeping specific risk precautions to prevent against loss in the case of the financial meltdown.
However, Tournant reportedly became dissatisfied with hedging costs, which was cutting into his profits, in late 2015. As per the charge, the fund ditched the stated hedging plan and started to acquire cheaper hedges which were more outside the cash and hence less protected in case of a financial meltdown. Prosecutors claim that the modification was not communicated to investors.
