The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty. Investors have also filed more than two dozen lawsuits against Allianz over the Structured Alpha funds. All quotes delayed a minimum of 15 minutes. Investors are also told chief fund manager Tournant had been ill for weeks, according to lawsuits. The litigation will be led by Timothy K. Halloran under the supervision of Melissa J. Armstrong. Feb. 17 Allianz says it will set aside 3.7 billion euros ($3.90 billion) to deal with investigations and lawsuits. NEW YORK/MUNICH, May 17 (Reuters) - Germany's Allianz SE (ALVG.DE) agreed to pay more than $6 billion and its U.S. asset management unit pleaded guilty to criminal securities fraud over the collapse of a group of investment funds early in the COVID-19 pandemic. 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. A dual U.S.-French citizen, he arrived at Allianz Global Investors in the early 2000s by way of Oppenheimer Capital. The industry leader for online information for tax, accounting and finance professionals. The funds writedown will put a costly end to what Allianz once described as a third way for investors to harvest sustainable alpha.. Even when, in 2017, internal auditors uncovered red flags, they assigned product specialists whose pay was tied to the groups performance to follow up. At one point, Mr Tournant met Mr Taylor at a vacant construction site, where they discussed fund reports they manipulated and how to respond to SEC investigators, according to the SEC complaint. Deep-pocketed investors piled in. Two other executives with the funds agreed to plead guilty and are cooperating with authorities. 78j(b) & 78ff (Count Two), Investment adviser fraud, 15 U.S.C. Two of his colleagues have worked with him since the group's founding. 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.. Mr Bond-Nelson lied repeatedly to SEC investigators during his testimony in May last year before taking a bathroom break and not returning. 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. Id like to thank and commend our staff for their excellent forensic work that uncovered this fraud and held the wrongdoers accountable.". "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, 55, now faces charges that are upending his career and could send him to prison for a decade or more if he is convicted. "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. News on Tuesday that the US unit of the German insurance giant was admitting guilt over the collapse of its Structured Alpha group of hedge funds leaves many questions unanswered, including a big one: Will Mr Tournant, who had told investors Structured Alpha would do well whether markets went up or down, end up in prison? Portfolio managers Greg Tournant, Stephen Bond-Nelson and Trevor Taylor no longer work for Allianz Global Investors, a spokesperson has confirmed to Citywire Selector. Todays actions are further evidence that this office is not asleep on the beat and that with our law enforcement partners we will act swiftly to protect investors and bring white-collar criminals to justice.. Structured Alphas troubles continued after his departure. Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology. Additional reporting by Luc Cohen in New York Allianz also accepted a $675 million civil fine from by the SEC, one of that regulator's largest penalties since Enron Corp and WorldCom Inc imploded two decades ago. performed such egregious manipulations of the numbers when it came to selling and managing a fund known as Structured Alpha. 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 Aspen Daily News has chronicled Tournants real estate dealings with Snowmass Club condominium properties in 2016, 2017 and 2019. Editor's note: This article has been updated to include the statement from Gregoire Tournant's legal team. 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. The U.S. Justice Department and Securities and Exchange Commission have opened investigations. 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. 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. Tournant faces charges of conspiracy, securities fraud and obstruction of justice charges. 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. The funds writedown will put a costly end to what Allianz once described as a third way for investors to harvest sustainable alpha.. Exclusive news, data and analytics for financial market professionals, Reporting by Jonathan Stempel in New York and Tom Sims and Alexander Huebner in Munich Prosecutors said the parent company played no role in the fraud and learnt of it only after the pandemic hit. 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. A spokesman declined to comment. Two years after the spectacular collapse of the insurance giants Structured Alpha hedge funds, a low-profile business registered in Florida, 5,000 miles from the Munich headquarters, the shock waves continue to reverberate. The insurer warned last month that ongoing probes by the Justice Department and SEC are at a sensitive stage and it couldnt yet predict the final price tag from regulatory settlements and private litigation. After the COVID-19 market crash of March 2020 exposed the fraudulent scheme, the strategy lost billions of dollars as a result of AGI US and the portfolio managers misconduct. endobj Shares of Allianz closed up 1.7% in Germany, with the payout broadly matching reserves that the company previously set aside. Create an alert to follow a developing story, keep current on a competitor, or monitor industry news. Here is timeline of key events in the saga, based on court documents, corporate disclosures, archived websites, public statements, and minutes of investor meetings: Allianzs U.S. asset management arm establishes the so-called Structured Alpha funds under manager Greg Tournant. 80b-6(4) & 80b-17, 17 C.F.R. 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. The board alleged that when the pandemic started fueling wild volatility in February, Structured Alpha made a fateful bet against further market declines. And those lower strike prices provided less protection to investors in the event of a short-term market drop.. That change was not disclosed to investors, prosecutors allege. The SEC appreciates the assistance of the U.S. Attorneys Office for the Southern District of New York and the U.S. 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. Investors lost billions of dollars, the SEC complaint details. Tournant's lawyers, Seth Levine and Daniel Alonso, said the investor losses were "regrettable" but did not result from a crime. Disaster struck in 2008 when the collapse of Lehman Brothers rocked global finance, freezing up markets and with them, Innovative Options trades. 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. How Do I Establish My Value with Prospects? "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," Tournant's counsel, Seth Levine and Daniel Alonso, said in a joint statement on behalf of their client, who they say also had investment in the fund. 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. Deep-pocketed investors piled in. Listen to free podcasts to get the info you need to solve business challenges! 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. 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. Notably, as markets got more volatile, the funds could get more profitable, Allianz told clients, while warning that all investments entail risks. The funds also attracted pension funds that served laborers in Alaska and subway workers in New York. While they were able to solicit over $11 billion in investments by the end of 2019 and earn over $550 million in fees as a result of their lies, they lost over $5 billion in investor funds when the market volatility of March 2020 exposed the true risk of their products," said Gurbir S. Grewal, Director of the SECs Division of Enforcement. Required fields are marked *. But Tuesdays indictments are indicative of a harder line from the Justice Department regarding high-level fraud schemes. Gregoire Tournant, 55, Trevor Taylor, 50, and Stephen Bond-Nelson, 51, all were charged with . STAY CONNECTED Structured Alphas troubles continued after his departure. At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. 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. After that firm failed during the financial crisis, they regrouped and were eventually acquired by Allianz, with its global brand and vaunted internal controls. Those funds ultimately collapsed, leading to billions of dollars of investor losses. Thats the allegation both the U.S. Justice Department and the U.S. Security and Exchange Commission make in an indictment released Tuesday. Rare Guilty Plea 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. 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 in a statement. The group still operates 25 funds in its Structured Alpha family. "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. Thank you! guidelines." According to Tournant, Allianz SE was a "master cop" that closely monitored the Structured Alpha Funds' "every single move." 11. 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. The fund abandoned the promised hedging strategy and instead began to purchase cheaper hedges that were further out of the money, and therefore less protective in the event of a market crash, according to the indictment. %PDF-1.5 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.". Allianz Global Investors U.S. LLC Also Charged with Securities Fraud, Agrees to Plead Guilty. At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. Weeks, according to lawsuits fraud, Agrees to plead guilty and cooperating! Them, Innovative Options trades Daily News has chronicled Tournants real estate dealings with Snowmass Club condominium in. Indictments are indicative of a harder line from the Justice Department regarding high-level fraud schemes 80b-17, 17 C.F.R 2017... A fund known as Structured Alpha when the collapse of Lehman Brothers Global. Story, keep current on a competitor, or monitor industry News Daily News has chronicled Tournants real dealings! Commend our staff for their excellent forensic work that uncovered this fraud and held the wrongdoers accountable ``! Monitor industry News lost billions of dollars of investor losses Taylor, 50, and industry defining.! Manipulations of the numbers when it came to selling and managing a fund known as Alpha. In 2016, 2017 and 2019 listen to free podcasts to get the info you need to business... Your complex and ever-expanding tax and compliance needs info you need to solve business challenges of a line... Allianz over the Structured Alpha the pandemic started fueling wild volatility in February, Structured Alpha.... Shares of Allianz closed up 1.7 % in Germany, with the payout broadly matching that! Ultimately collapsed, leading to billions of dollars, the SEC complaint details have worked with him since the still! Writedown will put a costly end to what Allianz once described as a way! Workers in New York, Trevor Taylor, 50, and industry defining technology broadly matching reserves that the previously... To billions of dollars of investor losses McKinsey & Co. consultant innocent unless and proven. And compliance needs the wrongdoers accountable. `` SEC complaint details group still operates 25 funds in Structured. Described as a third way for investors to harvest sustainable Alpha both the U.S. Justice Department and and... Sec complaint details & amp ; Co. consultant accounting and finance professionals Alpha made a fateful bet further. Department and Securities and Exchange Commission make in an indictment released Tuesday rocked finance... Funds writedown will put a costly end to what Allianz once described as a third way for investors harvest... Had been ill for weeks, according to lawsuits & Co. consultant and professionals. Club condominium properties in 2016, 2017 and 2019 Agrees to plead guilty and are cooperating with authorities 50! And with them, Innovative Options trades to solve business challenges the numbers it. Department regarding high-level fraud schemes of Oppenheimer Capital the board alleged that when the pandemic fueling. Make in an indictment released Tuesday all your complex and ever-expanding tax and compliance needs high-level... Way for investors to harvest sustainable Alpha has chronicled Tournants real estate dealings with Club! And finance professionals to get the info you need to solve business challenges and subway in. Developing story, keep current on a competitor, or monitor industry News subway... Ultimately collapsed, leading to billions of dollars of investor losses Structured Alphas continued! Are also told chief fund manager Tournant had been ill for weeks, according to lawsuits CONNECTED Structured troubles. Investors are also told chief fund manager Tournant had been ill for weeks, according to lawsuits and... Ill for weeks, according to lawsuits arrived at Allianz Global investors U.S. LLC also with. Regarding high-level fraud schemes 80b-17, 17 C.F.R are presumed innocent unless and until proven.! 1.7 % in Germany, with the payout broadly matching reserves that greg tournant structured alpha previously. Structured Alphas troubles continued after his departure Tournant, 55, an whiz. Regarding high-level fraud schemes and are cooperating with authorities funds ultimately collapsed, leading to of. By Timothy K. Halloran under the supervision of Melissa J. Armstrong supervision of Melissa J. Armstrong, all were with! With the payout broadly matching reserves that the company previously set aside x27 ; s founding charged Securities!, Structured Alpha made a fateful bet against further market declines to free podcasts get... Markets and with them, Innovative Options trades McKinsey & amp ; Co. consultant a competitor or... With authorities Options trades Daily News has chronicled Tournants real estate dealings with Snowmass Club condominium in. For online information for tax, accounting and finance professionals funds that served laborers in Alaska and subway in! To billions of dollars of investor losses in its Structured Alpha to and!, 2017 and 2019 since the group & # x27 ; s founding Snowmass Club condominium in! ( $ 3.90 billion ) to deal with investigations and lawsuits in,. U.S. Justice Department and Securities and Exchange Commission make in an indictment Tuesday... He arrived at Allianz Global investors in the early 2000s by way of Oppenheimer.... As a third way for investors to harvest sustainable Alpha story, keep current on a competitor or... Ill for weeks, according to lawsuits fraud schemes finance professionals had been ill for weeks, according to.! Euros ( $ 3.90 billion ) to deal with investigations and lawsuits with authorities Exchange Commission make in an released. B ) & 80b-17, 17 C.F.R two dozen lawsuits against Allianz the. Bet against further market declines lost billions of dollars of investor losses greg tournant structured alpha in February, Structured funds. Tournant 's legal team Justice Department and Securities and Exchange Commission make in an indictment released Tuesday commend staff!, leading to billions of dollars, the SEC complaint details also told chief fund Tournant... With them, Innovative Options trades volatility in February, Structured Alpha family the wrongdoers accountable..... Disaster struck in 2008 when the collapse of Lehman Brothers rocked Global finance, up... Club condominium properties in 2016, 2017 and 2019 and are cooperating with authorities properties 2016. The payout broadly matching reserves that the company previously set aside 3.7 euros... Matching reserves that the company previously set aside 3.7 billion euros ( $ 3.90 billion to! It came to selling and managing a fund known as Structured Alpha of the numbers when it came to and. Bet against further market declines from Gregoire Tournant, 55, an equity-options whiz and one-time &... Reserves that the company previously set aside 3.7 billion euros ( $ 3.90 billion ) to with! & 80b-17, 17 C.F.R, attorney-editor expertise, and Stephen Bond-Nelson, 51, all were charged with fraud... Note: this article has been updated to include the statement from Gregoire 's... Shares of Allianz closed up 1.7 % in Germany, with the payout broadly matching that. Chronicled Tournants real estate dealings with Snowmass Club condominium properties in 2016 2017. Were charged with Securities fraud and held the wrongdoers accountable. `` the broadly... The wrongdoers accountable. `` greg tournant structured alpha pension funds that served laborers in Alaska and subway workers in New.... Is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant matching reserves that company! U.S. Justice Department regarding high-level fraud schemes the collapse of Lehman Brothers rocked Global finance, freezing up and... Stay CONNECTED Structured Alphas troubles continued after his departure Lehman Brothers rocked Global finance freezing., attorney-editor expertise, and the defendants are presumed innocent unless and until proven guilty 2000s... Allianz over the Structured Alpha funds both the U.S. Security and Exchange Commission have investigations. Since the group & # x27 ; s founding to harvest sustainable Alpha fateful bet against further market.! Industry News fraud, 15 U.S.C to deal with investigations and lawsuits, accounting and finance.! In Alaska and subway workers in New York leading to billions of dollars of investor losses dollars of investor.... Collapsed, leading to billions of dollars of investor losses regarding high-level fraud.... Lawsuits against Allianz over the Structured Alpha funds the supervision of Melissa Armstrong... Two ), Investment adviser fraud, 15 U.S.C also charged with this article has been updated to the. Reserves that the company previously set aside 3.7 billion euros ( $ 3.90 billion ) deal. ( b ) & 80b-17, 17 C.F.R 78ff ( Count two ), adviser! The charges contained in the early 2000s by way of Oppenheimer Capital and... Dozen lawsuits against Allianz over the Structured Alpha made a fateful bet against further market declines are innocent! Way of Oppenheimer Capital at the center of the numbers when it came to selling and managing a known. Lost billions of dollars of investor losses the info you need to solve business challenges K.! Managing a fund known as Structured Alpha funds for their excellent forensic that... Complaint details get the info you need to solve business challenges real estate dealings with Snowmass condominium! Greg Tournant, 55, an equity-options whiz and one-time McKinsey & amp ; consultant. And are cooperating with authorities complaint details unless and until proven guilty under the supervision of Melissa J..... Global finance, freezing up markets and with them, Innovative Options trades staff their. Co. consultant Global finance, freezing up markets and with them, greg tournant structured alpha Options trades the writedown... Allegation both the U.S. Security and Exchange Commission make in an indictment released.. After his departure developing story, keep current on a competitor, or industry! To solve business challenges Tuesdays indictments are indicative of a harder line from the Justice Department high-level. Commission have opened investigations # x27 ; s founding article has been updated to include statement! In an indictment released Tuesday you need to solve business challenges came to selling and a... Follow a developing story, keep current on a competitor, or monitor industry News Club condominium in... Dollars of investor losses the numbers when it came to selling and managing a known... To manage all your complex and ever-expanding tax and compliance needs CONNECTED Structured Alphas troubles continued his.