See here for a complete list of exchanges and delays. Structured Alphas performance was solid. That change was not disclosed to investors, prosecutors allege. 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. "Greg Tournant has been unfairly targeted [in a] meritless and ill-considered attempt by the government to criminalize the impact of the unprecedented, COVID-induced market dislocation," the lawyers said in a joint statement. 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. 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. 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? Investors are also told chief fund manager Tournant had been ill for weeks, according to lawsuits. Required fields are marked *. 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. 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. Tournant, with Allianz Global Investors since 2002, founded the so-called Structured Alpha funds in 2005. At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. 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. At Allianz Global Investors U.S., Tournant and his Structured Alpha team were . The insurer continues to pick up the pieces. 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. 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. A dual U.S.-French citizen, he arrived at Allianz Global Investors in the early 2000s by way of Oppenheimer Capital. The U.S. 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.. 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. <>stream In late 2015, Mr Tournant allegedly grew frustrated with the cost of hedging, which was eating into returns. Also known for its insurance operations, Allianz is among Germany's most recognizable brands and an Olympic sponsor. 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. Allianz in February set aside $4.1 billion for the disaster, but the final reckoning is still due and could cost plenty more. The SECs investigation was conducted by Jonathan C. Shapiro and James F. Murtha, and supervised by Reid A. Muoio of the Complex Financial Instruments Unit. Wake up to today's headlines in your inbox. The group still operates 25 funds in its Structured Alpha family. 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. March 13 The investment consultant Aon warns Structured Alpha investors in a flash report that it put the Structured Alpha funds on review. 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. Allianz's U.S. asset management arm establishes the so-called Structured Alpha funds under manager Greg Tournant. "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. Feb. 17 Allianz says it will set aside 3.7 billion euros ($3.90 billion) to deal with investigations and lawsuits. Deep-pocketed investors piled in. <>stream United States v. Gregoire Tournant, 22 Cr. A chart containing the names, ages, residences, charges and maximum penalties for the defendants is attached. Create an alert to follow a developing story, keep current on a competitor, or monitor industry news. There was an error processing your request. read more. 3 Ways to Steer Clients Through a Challenging Economy. The cooperation of Mr Taylor and Mr Bond-Nelson was not assured. 149 (DLC), Conspiracy to commit securities fraud, investment adviser fraud, and wire fraud, 18 U.S.C. 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. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. Additional reporting by Luc Cohen in New York It fired Tournant and another fund manager, Stephen Bond-Nelson, in December, accusing them of violating compliance policies, according to public records filed with the Financial Industry Regulatory Authority. "Our strategies are not race cars looking to speed their way to high returns. His attorneys said the charges are an ill-considered attempt by the government to criminalise the impact of the unprecedented, COVID-induced market dislocation of March 2020. Thats the allegation both the U.S. Justice Department and the U.S. Security and Exchange Commission make in an indictment released Tuesday. All quotes delayed a minimum of 15 minutes. NEW YORK, Sept 15 (Reuters) - A U.S. judge on Thursday set a 2024 trial date for former Allianz SE (ALVG.DE) executive Gregoire Tournant, citing the complexity of allegations he defrauded investors out of billions of dollars by understating the risks of what they bought. The result was a massive fraud that cost investors $US7 billion ($10 billion), they say. It all came crashing down in the early, panicked days of Covid-19, when wild market swings upended an options strategy that was marketed as aiming to generate alpha regardless of market waves.. At Allianz Global Investors U.S., Tournant and his Structured Alpha team were incentivized to pursue outsized returns. The transition period will be ten weeks for the US mutual funds that AGI US sub-advises and four months for the US closed-end funds that AGI US advises. When a story breaks, your email dings. 1 auto market, Exclusive: Airbus advises airlines of 2024 delays, keeps output goals, Polestar to start production in South Carolina from 2024, says CEO, C.Suisse to move forward Q1 earnings, report before UBS, Norway wealth fund welcomes government request on unlisted equities. Taylor and Bond-Nelson have agreed to the entry of partial judgments against them in which they consent to injunctive relief with monetary relief to be determined by the court in the future. Allianz, which has denied wrongdoing, said earlier this month that independent advisers its hired to dig into what happened have thus far found no breaches of duty by the insurers management board. Assistant U.S. Bond-Nelson, at Tournant's direction, also lied to Allianz's in-house lawyers after the company learned about the altered reports and the SEC probe, prosecutors added. Two other Allianz execs pleaded guilty to playing a part in the scheme and are now cooperating with the governments investigation. Between 2014 and 2020, Gregoire Tournant, the defendant, was the Chief Investment Officer of a set of private funds at AGI known as the Structured Alpha Funds. xXnF}Gn@@&Z+'>ihS R/.JWC]/6z%8_~qv)2/E~8ye&_?A_M$,'ic-M,a%RZ*xRlK7SDK?)]G9G v-A[;DnEjl9X"+u,a(\wDxZ*(#X=iU Tournant has ties to the Roaring Fork Valley. guidelines." According to Tournant, Allianz SE was a "master cop" that closely monitored the Structured Alpha Funds' "every single move." 11. A .gov website belongs to an official government organization in the United States. They included dozens of public and private pension plans for the likes of Blue Cross & Blue Shield and New Yorks Metropolitan Transportation Authority. A conference has been scheduled for today at 3:00 p.m. before U.S. District Court Judge Loretta A. Preska, at which time AGI is expected to plead guilty to an information pursuant to the agreement. 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. 78j(b) & 78ff (Count Two), Investment adviser fraud, 15 U.S.C. And when the storm came in March 2020, when the COVID-19 crash hit, these investors got soaked and lost billions. 2735 0 obj Megan Tackett is the editor for the Aspen Daily News. Copyright 2023 by Wells Media Group, Inc. Allianz Fires 2 Asset Managers Who Ran Group of Collapsed Investment Funds, Allianz Sets Aside $4.2B to Handle Probes, Lawsuits After Collapse of Investment Funds, NFL Prospect Injured in Fatal Car Crash in Alabama, Global Insured Losses Estimated at $15B in Q1, With Economic Price Tag of $63B: Aon, Miami Homeowner Charged with Defrauding Citizens by Claiming Old Damage, Florida Roofing Company Owners Plead Guilty to More Than $1M in Tax Evasion. 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 $550 million in fees. Regulators said the misconduct included when Tournant and Bond-Nelson altered more than 75 risk reports before sending them to investors. Despite Tournants claim that Allianz acted as a master cop looking over his shoulder, no one at AGI or Allianz was verifying that Tournant and his colleagues were actually adhering to the investment strategies promised to investors. While the losses are regrettable, they are not the result of any crime., The Governments attempt to characterize them as such is not only unfairly damaging to Gregs reputation and livelihood, but extremely dangerous to the market as a whole. It expects a final agreement in the coming weeks. Follow the topics, people and companies that matter to you. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. L@IW$',Bt^[J[>}+$"j|\,/cmhyqyRdY'yD,1. R&qr`$."Eb+[#iw}|`9 pT(G!t'm 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. Postal Inspectors will never let these schemes go unchecked and will vigorously investigate and pursue those who choose criminal behavior over honest business practices.. Exclusive news, data and analytics for financial market professionals, Reporting by Jody Godoy 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. Feb. 18 Allianz announces bonus cuts for its CEO and board, and a settlement with a vast majority of investors. "Greg looks forward to vigorouslydefending himself in Court against these charges.". Allianz's alleged oversight lapses included a failure to ensure Tournant was hedging, though prosecutors said only people in his group knew of the misconduct before March 2020. 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. How Do I Establish My Value with Prospects? 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. March 4 Allianzs annual report discloses that Allianz Chief Executive Oliver Baete earned 9% more in 2021 despite a cut in his bonus for the funds saga. 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. They face long prison terms but could get far less time for their cooperation. Information is just a click away. performed such egregious manipulations of the numbers when it came to selling and managing a fund known as Structured Alpha. Also unsealed today are the guilty pleas of Trevor Taylor and Stephen Bond-Nelson in connection with their respective roles in the scheme. Prosecutors said the parent company played no role in the fraud and learnt of it only after the pandemic hit. A spokesman declined to comment. But prosecutors said it was barely functional. Disaster struck in 2008 when the collapse of Lehman Brothers rocked global finance, freezing up markets and with them, Innovative Options trades. By December 2019, Structured Alpha had grown to more than $10 billion, according to a person familiar with the matter. Former colleagues have turned on him, as has Allianz. Making Sense of the NAIC Risk Oversight Landscape, For This HNW Firm, It's Crunch Time for Estate Planning, 20 Cities With the Most Ultra-Wealthy Residents, What to Do When Generations Clash Over Philanthropy, Former Head of Fidelity Billionaires Family Office Leaves Firm. 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. According to the 54-page SEC complaint filed with the Department of Justice which did not return an inquiry for comment by presstime Tuesday the U.S. subsidiary of the Germany-headquartered Allianz SE (among the worlds largest financial-advisory and insurance companies) essentially cost mostly American investors more than $5 billion in March 2020. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. By the end of March, Allianz announced it was liquidating two Structured Alpha funds. Both are cooperating with the government. Even so, the payout is close to twice the $3.3 billion in corporate penalties that the Justice Department collected for all of 2021. And those lower strike prices provided less protection to investors in the event of a short-term market drop.. The board alleged that when the pandemic started fueling wild volatility in February, Structured Alpha made a fateful bet against further market declines. Our Standards: The Thomson Reuters Trust Principles. All three men were also sued by the Securities and Exchange Commission. It occurred at a very profitable component of AGI one that accounted for 25% of AGIs revenue in recent years, which amounted to hundreds of millions of dollars. I would enthusiastically recommend him for any computer engineering position." read more. 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