Error! Prosecutors said the managers also inflated fund results to boost their pay through performance fees, with Tournant, 55, collecting $13 million in 2019 and becoming his unit's highest or second-highest-paid employee from 2015 to 2019. Reports 2021 profit was the lowest since 2013. "From at least January 2016 through March 2020, the defendants lied about nearly every aspect of a highly complex investment strategy they marketed to institutional investors, including pension funds managing the retirement savings of everyday Americans. Allianz agreed to pay more than $6 billion in a settlement with U.S. authorities in May, and the German company's U.S. asset management unit pleaded guilty to securities fraud. Tournant, with Allianz Global Investors since 2002, founded the so-called Structured Alpha funds in 2005. surge" that had occurred in February 2018, Allianz said that "Structured Alpha's option portfolio is positioned for a strong improvement in the event of another February 2018-type move." Unfortunately for ATRS, Allianz departed from the Alpha Funds' investment mandate and disregarded the risk management protocols it was required to . Four billion dollars wrong so far, with outside estimates that it could grow much larger. Secure .gov websites use HTTPS Behind Allianzs $4B Fund Blowup, Red Flags and Fat Fees, Portfolio > Alternative Investments > Hedge Funds, By Postal Inspection Service also announced today a plea agreement (the agreement) pursuant to which AGI will plead guilty to securities fraud in connection with this fraudulent scheme, and pay more than $3 billion in restitution to the victims of this fraud, pay a criminal fine of approximately $2.3 billion, and forfeit approximately $463 million to the government. Every single time we greatly benefited from the higher levels of volatility and were able to generate much higher returns in the following two or three months after the draw-down, Tournant said in a 2016 marketing video. Automobile Diminished Value: Is THAT Covered. That change was not disclosed to investors, prosecutors allege. The board alleged that when the pandemic started fueling wild volatility in February, Structured Alpha made a fateful bet against further market declines. The fund managers were not the only ones at fault. 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. Exclusive news, data and analytics for financial market professionals, Reporting by Jonathan Stempel in New York and Tom Sims and Alexander Huebner in Munich 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. The SEC said projected losses in one market crash scenario were changed to 4.15% from the actual 42.15%, simply by removing the "2.". 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. Also known for its insurance operations, Allianz is among Germany's most recognizable brands and an Olympic sponsor. After that firm failed during the financial crisis, they regrouped and were eventually acquired by Allianz, with its global brand and vaunted internal controls. 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. <>stream Think Archegos, Long-Term Capital Management and the hedge funds whose collapse led to the demise of Bear Stearns. 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. The case has been assigned to U.S. District Judge Colleen McMahon. 80b-6(4) & 80b-17, 17 C.F.R. 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. They face long prison terms but could get far less time for their cooperation. The result was a massive fraud that cost investors $US7 billion ($10 billion), they say. Gregoire Tournant, the former chief investment officer who created the now-defunct Structured Alpha Funds, accused the law firm Sullivan & Cromwell of helping Allianz, also a client, make him. 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. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. "Greg looks forward to vigorouslydefending himself in Court against these charges.". An Allianz lawyer entered the guilty plea at a hearing before U.S. District Judge Loretta Preska in Manhattan. Chief Judge Laura Taylor Swain of the Manhattan federal court scheduled Tournant's trial for Feb. 5, 2024, rejecting his lawyer's argument that it was premature to schedule a date. 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. The Commission stands ready to use all appropriate tools to protect investors, including upholding prohibitions against certain activities by the guilty parties. According to the allegations in the indictment and the agreement unsealed today in Manhattan federal court: 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. These settlements are subject to court approval. 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 faces charges of conspiracy, securities fraud and obstruction of justice charges. "The victims of this misconduct include teachers, clergy, bus drivers, and engineers, whose pensions are invested in institutional funds to support their retirement. They were marketed in particular to typically conservative U.S. pension funds, from those . 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. Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. A lock (LockA locked padlock) or https:// means youve safely connected to the .gov website. A chart containing the names, ages, residences, charges and maximum penalties for the defendants is attached. In a 2016 video reviewed by Reuters, Tournant likened Structured Alpha's strategy to insurance. The allegations come after Allianz agreed to a pay $6bn to investors and US regulators over the collapse of the Structured Alpha funds. Japan's Nissan Motor on Tuesday unveiled a new electric sport-utility vehicle (SUV) at the Shanghai auto show as it pledged its commitment to the Chinese auto market, which it said was likely to continue to pioneer the rise of electric cars. Success! We are shocked by the actions of Greg Tournant and his former colleagues.. 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. Postal Inspection Service. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Grocery Chain Accuses Chubb of Lowballing, Fla. 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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. While Allianz made no secret of this arrangement, angry clients would later claim it was a recipe for bigger risks. There was an error processing your request. 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. Structured Alphas troubles continued after his departure. "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. 371 (Count One), United States v. Stephen Bond-Nelson, 22 Cr. Tournant's lawyers, Seth Levine and Daniel Alonso, said the investor losses were "regrettable" but did not result from a crime. 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. 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. Investing in Structured Alpha, Mr Tournant assured investors, was very, very different than if I had my own hedge fund firm where in some form or fashion I can overrule just about anything. 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 . Allianz on Tuesday announced plans to sell the bulk of the US piece of its Allianz Global Investors business to Voya Financial. Allianz is still grappling with the fallout. 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. 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. You have permission to edit this article. They included dozens of public and private pension plans for the likes of Blue Cross & Blue Shield and New Yorks Metropolitan Transportation Authority. Prosecutors say that although Mr Tournant assured big investors safety was his top priority, he secretly took huge, undisclosed risks. 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. Regulatory filings show that both Greg Tournant and Stephen Bond-Nelson were removed from their positions as managers of Allianz Global Investors Structured Alpha hedge funds in December for 'violation of firm policies designed to ensure compliance with industry regulations and standards relating to the preparation and provision of client communications', and 'violation of firm compliance . "Following the crash of the Structured Alpha Funds, the defendants continued their pattern of deceit by lying to SEC staff and their fraud would have gone undetected if it werent for the persistence of SEC lawyers who pieced together the full scope of the massive fraud.". 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. See here for a complete list of exchanges and delays. At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. 80b-6 & 80b-17 (Count Three), Investment adviser fraud, 15 U.S.C. At Allianz Global Investors U.S., Tournant and his Structured Alpha team were . The group still operates 25 funds in its Structured Alpha family. Those products would even turn a profit when markets went nowhere, according to product marketing materials. There was a problem saving your notification. Listen to free podcasts to get the info you need to solve business challenges! See here for a complete list of exchanges and delays. 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. Lead defendant in national fraud case has ties to Basalt, Roaring Fork Valley, And its far from the only time the defendants. 149 (DLC), Conspiracy to commit securities fraud, investment adviser fraud, and wire fraud, 18 U.S.C. Tournant and Taylor prospered at Allianz during the long bull market that followed the Great Recession. Investors allege Allianz and Structured Alpha abandoned risk controls and turned a challenging situation into a disaster by doubling down on a bad strategy. performed such egregious manipulations of the numbers when it came to selling and managing a fund known as Structured Alpha. Inbounds slide triggered at Snowmass; no one believed to be caught, FAA official: Changes needed at Aspen airport, Roaring Fork Valley Republican aims to unseat Boebert in primary, Mother Lode commercial space sells for $7M, Yogis and city of Aspen sign on the dotted line. Editor's note: This article has been updated to include the statement from Gregoire Tournant's legal team. January Global stock markets plunge amid fears of the spreading coronavirus. Investor lawsuits and settlements have piled up. At the same time, the firm has argued that its clients were sophisticated investors who knew what they were getting into. 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.. Prosecutors said the parent company played no role in the fraud and learnt of it only after the pandemic hit. But when the pandemic hit, everything went haywire. 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. Arkansas decides to build up its investment in the Allianz funds. 3 Ways to Steer Clients Through a Challenging Economy. Mr Tournant turned himself in to authorities in Colorado, where he lives, and faces trial in federal court in New York. And those lower strike prices provided less protection to investors in the event of a short-term market drop.. Tournant surrendered to Postal Inspectors in Denver, Colorado, this morning and is expected to be presented later today. 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.. As alleged, Tournant and his co-conspirators also provided investors with altered documents that were sent to investors to hide the true riskiness of the funds investments, including that they were buying cheaper hedges. Its every investors dream: Make money when markets go up, and when markets go down, and even when markets go practically nowhere. An arraignment was set for June 2 in New York. Taylor pleaded guilty pursuant to an information before U.S. District Judge Denise Cote on March 8. All structured data from the file namespace is available under the Creative Commons CC0 License; all unstructured text is available under the Creative Commons Attribution-ShareAlike License; additional terms may apply. "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 funds writedown will put a costly end to what Allianz once described as a third way for investors to harvest sustainable alpha.. Allianz's guilty plea carries a 10-year ban on Allianz Global Investors' providing advisory services to U.S.-registered investment funds. As alleged, one of the ways Tournant carried out the fraud was by marketing the fact that he worked for a well-respected financial institution, AGI, which is a part of the Allianz SE (Allianz) family. 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