But when the pandemic hit, everything went haywire. Tournant touted the protections provided by the funds position within the global Allianz corporate structure, calling Allianz a master cop that would ensure that Tournant followed the risk guidelines promised to investors. The U.S. Justice Department and Securities and Exchange Commission have opened investigations. 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. Long before the pandemic, their small investment firm on Miamis Brickell Avenue, aka, Wall Street South, collapsed when its trades went bad, according to two former employees there foreshadowing what was to come. 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. Greg Byrd "Linas was in my C programming class (ECE 209) at NC State University. 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. 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. 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. The Structured Alpha funds performed relatively well until the COVID-related market volatility in March 2020, when they suffered catastrophic losses, including losses in excess of 90% in certain funds. 78j(b) & 78ff (Count Two), Gregoire Tournant, Chief Investment Officer of Allianz Global Investors U.S.s Structured Products Group, and Two Others Charged with Fraud Offenses, Securities, Commodities, & Investment Fraud. "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. Prosecutors said the managers also inflated fund results to boost their pay through performance fees, with Tournant, 55, collecting $13 million in 2019 and becoming his unit's highest or second-highest-paid employee from 2015 to 2019. Tournant, the former chief investment officer who created and oversaw Allianz's now-defunct Structured Alpha funds, was indicted in May on fraud, conspiracy and obstruction charges and pleaded not guilty. induced market dislocation of March 2020," Tournant's counsel, Seth Levine and Daniel Alonso, said in a joint statement on behalf of their client, who they say also had investment in the fund. L@IW$',Bt^[J[>}+$"j|\,/cmhyqyRdY'yD,1. R&qr`$."Eb+[#iw}|`9 pT(G!t'm 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. Allianz also assured investors that it was backstopping Structured Alphas risk-management processes. Regulators said the misconduct included when Tournant and Bond-Nelson altered more than 75 risk reports before sending them to investors. As a result, Allianz plans to move about $120 billion of investor assets to Voya Financial Inc (VOYA.N) in exchange for a stake of up to 24% in Voya's investment management unit. Authorities had accused Aliianz's U.S. unit, Allianz Global Investors US LLC, of misleading pension funds and having "significant gaps" in its oversight. As part of the parallel criminal proceeding, AGI US, Taylor and Bond-Nelson have agreed to guilty pleas. All these months later, the big question remains: How could a few obscure money managers people on no ones list of hedge-fund luminaries blow such a huge hole in Allianz, which traces its history to the days of Bismarck? Its every investors dream: Make money when markets go up, and when markets go down, and even when markets go practically nowhere. See here for a complete list of exchanges and delays. 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. 276 (LTS), Conspiracy to commit securities fraud, investment adviser fraud, and wire, 18 U.S.C. a massive fraudulent scheme, as described in an SEC press release. 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. 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. That change was not disclosed to investors, prosecutors allege. Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology. See here for a complete list of exchanges and delays. Thats according to the Arkansas Teacher Retirement System, which in February settled a suit over its Structured Alpha losses for $643 million. 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.. When a story breaks, your email dings. 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. They face long prison terms but could get far less time for their cooperation. 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. April 6 The Arkansas funds board votes to exit the Allianz funds and park the proceeds with BlackRock. 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. Williams said the fine was significantly reduced because of Allianz's compensation to investors. The SEC's complaint, filed in the federal district court in Manhattan, alleges that Structured Alpha's 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. Listen to free podcasts to get the info you need to solve business challenges! Information is just a click away. 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. 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. Prosecutors say that although Mr Tournant assured big investors safety was his top priority, he secretly took huge, undisclosed risks. The Arkansas pension fund makes an initial investment in Allianzs Structured Alpha funds. Files are available under licenses specified on their description page. Allianz spokesman John Wallace said Mr Tournant and his two lieutenants engaged in isolated but serious wrongdoing that led the company to pay billions of dollars in settlements. It further alleges that, with assistance from Co-Lead Portfolio Manager, Trevor L. Taylor, and Portfolio Manager, Stephen G. Bond-Nelson, Tournant manipulated numerous financial reports and other information provided to investors to conceal the magnitude of Structured Alphas true risk and the funds actual performance. "Allianz Global Investors admitted to defrauding investors over multiple years, concealing losses and downside risks of a complex strategy, and failing to implement key risk controls," said SEC Chair Gary Gensler. 80b-6(4) & 80b-17, 17 C.F.R. The industry leader for online information for tax, accounting and finance professionals. Alpha Matheseos Arithmetica Theorica & Practica (in Latin), Vilnius, 1733.jpg 500 820; 118 KB Basas sirdies pas Pona Diewa Szwciausy Marya Panna yr szwntus danguy karalaujencius, szaukancios par giesmes (in Lithuanian language) by Prancikus rubauskis, Vilnius, 1790.jpg 1,002 1,433; 269 KB 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. In late 2015, Mr Tournant allegedly grew frustrated with the cost of hedging, which was eating into returns. Your article was successfully shared with the contacts you provided. Exclusive news, data and analytics for financial market professionals, Reporting by Jody Godoy 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. She can be reached at megan@aspendailynews.com or on Twitter @MeganTackett10. He was arrested in Colorado though not by local authorities, according to officials from the Pitkin County Sheriffs Office, Aspen Police Department and Basalt Police Department and subsequently released on $20 million bond, per reporting from, We have faith that the justice system will reject this meritless and ill-considered attemptby the governmentto criminalize the impact of theunprecedented,COVID-. Reuters, the news and media division of Thomson Reuters, is the worlds largest multimedia news provider, reaching billions of people worldwide every day. They included dozens of public and private pension plans for the likes of Blue Cross & Blue Shield and New Yorks Metropolitan Transportation Authority. 2007 Arkansas' pension fund for retired teachers - which would later be the. No risk or compliance personnel at AGI verified, attempted to verify or were responsible for verifying that Tournant and his colleagues were purchasing hedging positions within the range that was represented to investors. 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 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. Under that oversight, Allianz told CMERS that it had prepared the Funds for "highly unlikely 'what if' scenarios" by "developing mathematically pre-established portfolio Allianz in Februarysetaside $4.1 billion for the disaster, but the final reckoning is still due and could cost plenty more. Allianz in February set aside $4.1 billion for the disaster, but the final reckoning is still due and could cost plenty more. The allegations come after Allianz agreed to a pay $6bn to investors and US regulators over the collapse of the Structured Alpha funds. 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. Instead of being part of the companys planned expansion to waterfront offices, Frenkel ended up helping liquidate the business. ", Investors "were promised a relatively safe investment with strict risk controls designed to weather a sudden storm, like a massive collapse in the stock market," he said. The U.S. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. 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. Our Standards: The Thomson Reuters Trust Principles. Tournant himself was heavily invested in the funds he managed and lost money along with clients, according to a person familiar with the matter. 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. 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. Postal Inspection Service and the Special Agents of the U.S. Attorneys Office for the Southern District of New York investigated this case. 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. 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. Tournant and Taylor prospered at Allianz during the long bull market that followed the Great Recession. 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. Four billion dollars wrong so far, with outside estimates that it could grow much larger. Unfortunately, weve seen a recent string of cases in which derivatives and complex products have harmed investors across market sectors. The U.S.-French citizen appeared briefly in Denver federal court, and was released after agreeing to post a $20 million bond. Once with more than $11 billion of assets under management, the Structured Alpha funds lost more than $7 billion as COVID-19 roiled markets in February and March 2020. %PDF-1.5 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 case has been assigned to U.S District Court Judge Laura Taylor Swain. Greg looks forward to vigorouslydefending himself in Court against these charges., Allianz told to pay $6bn after SEC charges three execs with fraud over Structured Alpha funds scandal. Taylor and Bond-Nelson also agreed to associational and penny stock bars. 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. 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. 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. Tournant's lawyers, Seth Levine and Daniel Alonso, said the investor losses were "regrettable" but did not result from a crime. 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. Mr Tournant and Mr Taylor worked together well over a decade ago when they were at Structured Alphas predecessor, Options Management, which had a similar strategy. 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 US pleaded guilty to one count of securities fraud and agreed to pay about $US6 billion to resolve the case. Disaster struck in 2008 when the collapse of Lehman Brothers rocked global finance, freezing up markets and with them, Innovative Options trades. 80b-6 & 80b-17 (Count Three), Investment adviser fraud, 15 U.S.C. The funds writedown will put a costly end to what Allianz once described as a third way for investors to harvest sustainable alpha.. Help using this website - Accessibility statement. read more. 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. In a parallel criminal proceeding, the U.S. Attorneys Office for the Southern District of New York today announced criminal charges for similar conduct against AGI US, Tournant, Taylor, and Bond-Nelson. In a 2016 video reviewed by Reuters, Tournant likened Structured Alpha's strategy to insurance. Even when, in 2017, internal auditors uncovered red flags, they assigned product specialists whose pay was tied to the groups performance to follow up. 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. This case is being handled by SDNYs Securities and Commodities Fraud Task Force. 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. At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. Feb. 18 Allianz announces bonus cuts for its CEO and board, and a settlement with a vast majority of investors. Rare Guilty Plea June 30 The Arkansas funds board votes to sue Allianz. An email has been sent to with a link to confirm list signup. Those funds ultimately collapsed, leading to billions of dollars of investor losses. Dont forget you can visit MyAlerts to manage your alerts at any time. Instead of being part of the companys planned expansion to waterfront offices, Frenkel ended up helping liquidate the business. March 25 Allianz announces the liquidation of two hard-hit funds. Investors allege Allianz and Structured Alpha abandoned risk controls and turned a challenging situation into a disaster by doubling down on a bad strategy. Aug. 7 Oliver Baete, Allianz chief executive officer describes a horrible week and concedes not everything was perfect in the fund management.. <>stream The conviction carried a 10-year ban on Allianz Global Investors providing advisory services to U.S.-registered investment funds. Allianz is still grappling with the fallout. Allianz subsequently moved about $120 billion of investor assets to Voya Financial Inc (VOYA.N) in exchange for a 24% stake in Voya's asset management business. For the second time in under a month, the department has brought charges in connection with a sophisticated Wall Street scheme that cost victims billions of dollars. 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. Behind Allianzs $4B Fund Blowup, Red Flags and Fat Fees, Portfolio > Alternative Investments > Hedge Funds, By These institutional investors included, among others, pension funds for teachers in Arkansas, laborers in Alaska, bus drivers and subway conductors in New York City, as well as religious organizations, engineers, and other individuals, universities and charitable organizations across the United States. Greg Tournant, Stephen Bond-Nelson and Trevor Taylor no longer work for AllianzGI, a spokesperson has confirmed to Citywire Selector. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. 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. Structured Alpha 1000 and Structured Alpha 1000 Plus targeted returns of 10 per cent above three-month US Treasury bills. March 13 The investment consultant Aon warns Structured Alpha investors in a flash report that it put the Structured Alpha funds on review. "The victims of this misconduct include teachers, clergy, bus drivers, and engineers, whose pensions are invested in institutional funds to support their retirement. The bigger the investment gains, the bigger the payday. More than 100 institutional investors, representing more than 100,000 individuals, were victims of this scheme. Subscribe to the City A.M. newsletter to have our top stories delivered directly to your inbox. These settlements are subject to court approval. Get Free Insurance Industry News Updates Delivered to Your Email! Follow the topics, people and companies that matter to you. Copyright 2022 Bloomberg. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. The funds writedown will put a costly end to what Allianz once described as a third way for investors to harvest sustainable alpha.. For the discerning eye, the latter number is exactly half of the former. 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. Former colleagues have turned on him, as has Allianz. 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., These individuals working under the name of Allianz Global Investors, an international management firm, allegedly took advantage of its global recognition when they devised a scheme to mislead investors leading to the loss of billions of dollars, said Inspector-in-Charge Daniel B. Brubaker of the New York Office of the U.S. . They were marketed in particular to typically conservative U.S. pension funds, from those . Required fields are marked *. Megan Tackett is the editor for the Aspen Daily News. The litigation will be led by Timothy K. Halloran under the supervision of Melissa J. Armstrong. Sept. 10 Reuters reports that the DOJ was looking at possible misconduct by fund managers and misrepresentation of risk to investors. (Reporting by Tom Sims; editing by Tomasz Janowski). 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