Bond-Nelson, at Tournant's direction, also lied to Allianz's in-house lawyers after the company learned about the altered reports and the SEC probe, prosecutors added. According to a law enforcement official, the only local legal interaction Tournant has experienced was in 2014, when he was issued a warning for failing to obey a traffic control device in Aspen. 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. Allianz Global Investors U.S. LLC Also Charged with Securities Fraud, Agrees to Plead Guilty. Tournant, of Basalt, Colorado, surrendered to authorities on Tuesday morning. Allianz is one of the worlds largest financial services companies and one of the worlds largest insurance companies. See here for a complete list of exchanges and delays. The U.S.-French citizen appeared briefly in Denver federal court, and was released after agreeing to post a $20 million bond. "The governments attempt to characterize them as such is not only unfairly damaging to Gregs reputation and livelihood, but extremely dangerous to the market as a whole," they continue. Megan Tackett is the editor for the Aspen Daily News. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. While Allianz made no secret of this arrangement, angry clients would later claim it was a recipe for bigger risks. May The U.S. Department of Justice approaches Allianz for information on the funds. AGI US has agreed to pay billions of dollars as part of an integrated, global resolution, including more than $1 billion to settle SEC charges and together with its parent, Allianz SE, over $5 billion in restitution to victims. Reuters, the news and media division of Thomson Reuters, is the worlds largest multimedia news provider, reaching billions of people worldwide every day. The over-the-counter spreads were so great, they couldnt close positions, said Frenkel, who was chief compliance officer for Innovative Options. 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. I would enthusiastically recommend him for any computer engineering position." May 11 Allianz sets aside another 1.9 billion euros to settle litigation and any fines from U.S. regulators. The board alleged that when the pandemic started fueling wild volatility in February, Structured Alpha made a fateful bet against further market declines. The SECs complaint seeks permanent injunctions, disgorgement plus interest, and penalties against Tournant, Taylor, and Bond-Nelson. They included dozens of public and private pension plans for the likes of Blue Cross & Blue Shield and New Yorks Metropolitan Transportation Authority. Covers German finance with a focus on big banks, insurance companies, regulation and financial crime, previous experience at the Wall Street Journal and New York Times in Europe and Asia. Tournant surrendered to Postal Inspectors in Denver, Colorado, this morning and is expected to be presented later today. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. 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. Between 2014 and 2020, Gregoire Tournant, the defendant, was the Chief Investment Officer of a set of private funds at AGI known as the Structured Alpha Funds. January Global stock markets plunge amid fears of the spreading coronavirus. It all came crashing down in the early, panicked days of COVID-19, when wild market swings upended an options strategy that was marketed as aiming to generate alpha regardless of market waves. During the first quarter of 2020, five Structured Alpha funds lost between 49% and 97% of their value, performance that investors contend in legal filings was far worse than similar strategies. "Those promises were lies. Today is the day for accountability.". Notably, as markets got more volatile, the funds could get more profitable, Allianz told clients, while warning that all investments entail risks. While the losses are regrettable, they are not the result of any crime. The bigger the investment gains, the bigger the payday. Tournant himself was heavily invested in the funds he managed and lost money along with clients, according to a person familiar with the matter. 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. In early March of 2020, as he was grappling with the pandemics effect on his funds, Tournant went on medical leave for undisclosed reasons, the person said. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. Be the first to know what's happening as it's happening. End of the road: Why More Than will no longer sell car insurance as insurer RSA quits market, HSBC, SocGen and BNP Paribas raided in France as part of cum cum tax probe, Top City firms pledge to hike contributions to employees pensions pots amid concerns over looming savings crunch. An Allianz lawyer entered the guilty plea at a hearing before U.S. District Judge Loretta Preska in Manhattan. Behind Allianzs $4B Fund Blowup, Red Flags and Fat Fees, Portfolio > Alternative Investments > Hedge Funds, By a massive fraudulent scheme, as described in an SEC press release. 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.. Soon, he decided to cooperate and assist the SEC staff in understanding the Structured Alpha fraud, according to the agency 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. 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. Tournant, with Allianz Global Investors since 2002, founded the so-called Structured Alpha funds in 2005. 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. Instead, U.S. authorities say, Tournant sold lies to investors that cost customers, and now Allianz, billions of dollars, and resulted in a guilty plea to federal charges of securities fraud by Allianz Global Investors US. Create an alert to follow a developing story, keep current on a competitor, or monitor industry news. 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. Its Alpha U.S. Equity 250 fund posted average annual returns of 10.9% between early 2005 and June 2018, compared with the S&P 500s 8.7% average annualized return over the same period, according to a 2018 marketing document. By the end of March, Allianz announced it was liquidating two Structured Alpha funds. 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. He earned a grade of A+, which is not easy in my class. 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. Rare Guilty Plea In March 2020, following the onset of market dislocations brought on by the COVID-19 pandemic, the funds lost in excess of $7 billion in market value, including over $3.2 billion in principal, faced margin calls and redemption requests, and ultimately were shut down. 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. Careers have been upended. See here for a complete list of exchanges and delays. 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. 2735 0 obj The department stands ready to keep bringing these kinds of charges to assure the public that no one is above the law.. 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. 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. 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. 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. And its far from the only time the defendants performed such egregious manipulations of the numbers when it came to selling and managing a fund known as Structured Alpha. 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. 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. In early March of 2020, as he was grappling with the pandemics effect on his funds, Tournant went on medical leave for undisclosed reasons, the person said. Postal Inspectors will never let these schemes go unchecked and will vigorously investigate and pursue those who choose criminal behavior over honest business practices.. Postal Inspection Service. The case has been assigned to U.S District Court Judge Laura Taylor Swain. Arkansas decides to build up its investment in the Allianz funds. 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. 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. The SEC appreciates the assistance of the U.S. Attorneys Office for the Southern District of New York and the U.S. Lead manager Greg Tournant joined Allianz in 2002 and started the structured products group in 2005. The multiyear, multibillion-dollar scheme was simple in concept but complicated in practice, especially for those uninitiated with Wall Street. guidelines." According to Tournant, Allianz SE was a "master cop" that closely monitored the Structured Alpha Funds' "every single move." 11. Get Free Insurance Industry News Updates Delivered to Your Email! 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. 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. Investors were told the funds employed options that included hedges to protect against market crashes, but prosecutors said fund managers repeatedly failed to buy those hedges. 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. Investors lost billions of dollars, the SEC complaint details. Instead of employing the usual formula for hedge-fund fees the 2 and 20 mix of management charges and a cut of profits they were compensated for one thing alone: performance. Wake up to today's headlines in your inbox. More than 100 institutional investors, representing more than 100,000 individuals, were victims of this scheme. Allianz was confident enough in Tournants team that it let them charge a performance fee alone of 25% to 30% of net capital appreciation above a benchmark. % of people found this article valuable. Information is just a click away. 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. Allianz is still grappling with the fallout. Those investors included pension funds for teachers, clergy, bus drivers, engineers and others, the vast majority of whom live and work in the United States.. Allianz Global Investors also failed to keep watch over Tournant, the New York prosecutors said, as they claimed the firm was asleep on the beat while the fund manager and his co-conspirators lined their own pockets by misleading pension funds. The transition period will be ten weeks for the US mutual funds that AGI US sub-advises and four months for the US closed-end funds that AGI US advises. Arkansas Structured Alpha holdings reach a market value of $1.6 billion at the end of 2019, a significant portion of the $18.3 billion fund. Why AI tools, like GPT, are now at the frontline of the Citys talent war? And when the storm came in March 2020, when the COVID-19 crash hit, these investors got soaked and lost billions. Please tell us what we can do to improve this article. 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. For Allianz, Tuesdays development brought an end to legal headaches that have engulfed the German insurer since the funds imploded in March 2020, when financial markets reeled during the early days of the pandemic. As the introductory phrase signifies, the entirety of the text of the indictment and the description of the indictment set forth in this release constitute only allegations, and every fact described should be treated as an allegation. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. 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 conviction carried a 10-year ban on Allianz Global Investors providing advisory services to U.S.-registered investment funds. 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. This material may not be published, broadcast, rewritten, or redistributed. At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. g4e#tnvP]AI]p8abg\YFf\mWo5z@#:1S1f7+woI#6 {QO1DuFR_/ a@P'6{WB@ujKalGVW6jA5:!R,/*jn Mr Tournant turned himself in to authorities in Colorado, where he lives, and faces trial in federal court in New York. When the 2020 COVID-related market volatility revealed that AGI US and the defendants had misled investors about the funds level of risk, the fund suffered catastrophic losses and investors lost billions; the defendants all the while profited from their deception. Instead of employing the usual formula for hedge-fund fees the 2 and 20 mix of management charges and a cut of profits they were compensated for one thing alone: performance. Deep-pocketed investors piled in. Two of his top lieutenants, Stephen Bond-Nelson and Trevor Taylor, agreed to plead guilty and are cooperating with prosecutors. Defendants reduced losses under a market crash scenario in one risk report sent to investors from negative 42.1505489755747% to negative 4.1505489755747% -- by simply dropping the single digit 2. Neil Weinberg, Alex Wittenberg and Will Louch, Analysis Investors were told the funds employed options that included hedges to protect against market crashes, but prosecutors said the fund managers repeatedly failed to buy those hedges. The over-the-counter spreads were so great, they couldnt close positions, said Frenkel, who was chief compliance officer for Innovative Options. As a consequence of the guilty plea, AGI US is automatically and immediately disqualified from providing advisory services to U.S.-registered investment funds for the next 10 years, and will exit the business of conducting these fund services, the SEC press release explains. 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