NEW YORK/MUNICH, Might 17 (Reuters) – Germany’s Allianz SE (ALVG.DE) agreed to pay greater than $6 billion and its U.S. asset administration unit pleaded responsible to legal securities fraud over the collapse of a gaggle of funding funds early within the COVID-19 pandemic.
Allianz’s settlements with the U.S. Division of Justice and U.S. Securities and Change Fee are among the many largest in company historical past, and dwarf earlier settlements obtained underneath President Joe Biden’s administration.
Gregoire Tournant, the previous chief funding officer who created and oversaw the now-defunct Structured Alpha funds, was additionally indicted for fraud, conspiracy and obstruction, whereas two different former portfolio managers entered associated responsible pleas.
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As soon as with greater than $11 billion of property underneath administration, the Structured Alpha funds misplaced greater than $7 billion as COVID-19 roiled markets in February and March 2020.
Allianz World Traders US LLC was accused of deceptive pension funds for academics, bus drivers, engineers, spiritual teams and others by understating the funds’ dangers, and having “important gaps” in its oversight. learn extra
Traders had been advised the funds employed choices that included hedges to guard towards market crashes, however prosecutors mentioned the fund managers repeatedly failed to purchase these hedges.
Prosecutors mentioned the managers additionally inflated fund outcomes to spice up their pay via efficiency charges, with Tournant, 55, amassing $13 million in 2019 and changing into his unit’s highest or second-highest-paid worker from 2015 to 2019.
Investigators mentioned the misrepresentations started in 2014, and helped Allianz generate greater than $400 million of internet revenue.
At a information convention, U.S. Lawyer Damian Williams in Manhattan mentioned greater than 100,000 traders had been harmed, and that whereas American prosecutors not often carry legal prices towards firms it was “the suitable factor to do.”
Traders “had been promised a comparatively protected funding with strict threat controls designed to climate a sudden storm, like an enormous collapse within the inventory market,” he mentioned. “These guarantees had been lies…. In the present day is the day for accountability.”
BLAMING COVID
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, certainly one of world’s best-known soccer groups.
The settlement requires Allianz to pay a $2.33 billion legal nice, make $3.24 billion of restitution and forfeit $463 million, court docket papers present.
Williams mentioned the nice was considerably lowered due to Allianz’s compensation to traders.
Even so, the payout is near twice the $3.3 billion in company penalties that the Justice Division collected for all of 2021.
An Allianz lawyer entered the responsible plea at a listening to earlier than U.S. District Choose Loretta Preska in Manhattan.
Allianz additionally accepted a $675 million civil nice from by the SEC, certainly one of that regulator’s largest penalties since Enron Corp and WorldCom Inc imploded twenty years in the past.
Shares of Allianz closed up 1.7% in Germany, with the payout broadly matching reserves that the corporate beforehand put aside.
Tournant, of Basalt, Colorado, surrendered to authorities on Tuesday morning.
The U.S.-French citizen appeared briefly in Denver federal court docket, and was launched after agreeing to publish a $20 million bond. An arraignment was set for June 2 in New York.
Tournant’s attorneys, Seth Levine and Daniel Alonso, mentioned the investor losses had been “regrettable” however didn’t outcome from against the law.
“Greg Tournant has been unfairly focused [in a] meritless and ill-considered try by the federal government to criminalize the affect of the unprecedented, COVID-induced market dislocation,” the attorneys mentioned in a joint assertion.
The opposite two portfolio managers – Stephen Bond-Nelson, 51, of Berkeley Heights, New Jersey; and Trevor Taylor, 49, of Miami – agreed to plead responsible to fraud and conspiracy, and cooperate with prosecutors. Their attorneys declined instant 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.
Consequently, Allianz plans to maneuver about $120 billion of investor property to Voya Monetary Inc (VOYA.N) in trade for a stake of as much as 24% in Voya’s funding administration unit. It expects a last settlement within the coming weeks.
Regulators mentioned the misconduct included when Tournant and Bond-Nelson altered greater than 75 threat reviews earlier than sending them to traders.
The SEC mentioned projected losses in a single market crash state of affairs had 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 Tournant was hedging, although prosecutors mentioned solely individuals 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 course, additionally lied to Allianz’s in-house attorneys after the corporate discovered concerning the altered reviews and the SEC probe, prosecutors added.
“Sadly, we have seen a current string of instances through which derivatives and complicated merchandise have harmed traders throughout market sectors,” SEC Chair Gary Gensler mentioned in an announcement.
Traders have additionally filed greater than two dozen lawsuits towards Allianz over the Structured Alpha funds.
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Reporting by Jonathan Stempel in New York and Tom Sims and Alexander Huebner in Munich
Extra reporting by Luc Cohen in New York
Modifying by Chizu Nomiyama, Tomasz Janowski and Matthew Lewis
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