He was at the top of the class, and his work was excellent in all respects. (Reporting by Tom Sims; editing by Tomasz Janowski). Prosecutors and regulators revealed new details of how they say Mr Tournant, Mr Taylor, and Mr Bond-Nelson duped investors, consultants, colleagues and auditors. Investors have also filed more than two dozen lawsuits against Allianz over the Structured Alpha funds. 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 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. A dual U.S.-French citizen, he arrived at Allianz Global Investors in the early 2000s by way of Oppenheimer Capital. Additional reporting by Luc Cohen in New York Structured Alphas troubles continued after his departure. Aug. 1 Allianz publicly discloses the DOJ investigation and says it could take a financial hit. The cooperation of Mr Taylor and Mr Bond-Nelson was not assured. 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. Postal Inspection Service. Mr Tournant turned himself in to authorities in Colorado, where he lives, and faces trial in federal court in New York. At Allianz Global Investors U.S., Tournant and his Structured Alpha team were incentivized to pursue outsized returns. In late 2015, Mr Tournant allegedly grew frustrated with the cost of hedging, which was eating into returns. While Allianz made no secret of this arrangement, angry clients would later claim it was a recipe for bigger risks. By the end of March, Allianz announced it was liquidating two Structured Alpha funds. The conviction carried a 10-year ban on Allianz Global Investors providing advisory services to U.S.-registered investment funds. a massive fraudulent scheme, as described in an SEC press release. Mr Tournant, the chief investment officer at Miami-based Structured Alpha, spent years "smoothing" performance data, lying about hedges against market downturns, and pretending risk managers. 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. Bond-Nelson pled guilty pursuant to an information before U.S. District Judge Paul A. Engelmayer on March 3. Instead of employing the usual formula for hedge-fund fees the "2 and. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. 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. Structured Alpha 1000 and Structured Alpha 1000 Plus targeted returns of 10 per cent above three-month US Treasury bills. The department stands ready to keep bringing these kinds of charges to assure the public that no one is above the law.. At Allianz Global Investors U.S., Tournant and his Structured Alpha team were incentivized to pursue outsized returns. The complaint further alleges that Tournant, Taylor, and Bond-Nelson then made multiple, ultimately unsuccessful, efforts to conceal their misconduct from the SEC, including false testimony and meetings in vacant construction sites to discuss sending their assets overseas. According to an initial report by Bloomberg, the trio used to manage the Structured Alpha funds, but all left the company in December 2021, per company filings. The funds writedown will put a costly end to what Allianz once described as a third way for investors to harvest sustainable alpha.. Email notifications are only sent once a day, and only if there are new matching items. Tournant and Taylor declined to comment. Its namesake arena near its Munich headquarters, meanwhile, houses Bayern Munich, one of world's best-known soccer teams. Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. The funds writedown will put a costly end to what Allianz once described as a third way for investors to harvest sustainable alpha.. I would enthusiastically recommend him for any computer engineering position." read more. They were marketed in particular to typically conservative U.S. pension funds, from those . 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. 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.. The SEC's complaint, filed in the U.S. 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. 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? Structured Alphas performance was solid. For instance, say an investment fund actually performs with a -30.8197078741882% return, but the investor is told that the actual number is -15.4098539370941882% as Allianz Global Investors U.S. LLC told its investors in a month-end March 2018 income deposit security, or IDS, report. 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. 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 Tournant faces charges of conspiracy, securities fraud and obstruction of justice charges. 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 former portfolio managers entered related guilty pleas. Washington D.C., May 17, 2022 . 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 star portfolio manager behind Allianz Structured Alpha funds faces decades in prison after he traded off Allianz good reputation to defraud investors of billions, US prosecutors have said. Unfortunately, weve seen a recent string of cases in which derivatives and complex products have harmed investors across market sectors. Pensions funds for so many retirees, religious organizations and essential workers from laborers in Alaska, to teachers in Arkansas, to bus drivers and subway conductors here in New York City invested with AGI because they were promised a relatively safe investment with strict risk controls. Thats the allegation both the U.S. Justice Department and the U.S. Security and Exchange Commission make in an indictment released Tuesday. Also known for its insurance operations, Allianz is among Germany's most recognizable brands and an Olympic sponsor. All three men were also sued by the Securities and Exchange Commission. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. An Allianz lawyer entered the guilty plea at a hearing before U.S. District Judge Loretta Preska in Manhattan. Error! Mr Bond-Nelson lied repeatedly to SEC investigators during his testimony in May last year before taking a bathroom break and not returning. 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. Its every investors dream: Make money when markets go up, and when markets go down, and even when markets go practically nowhere. Tournant and Taylor prospered at Allianz during the long bull market that followed the Great Recession. 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 funds also attracted pension funds that served laborers in Alaska and subway workers in New York. 137 (PAE), Conspiracy to obstruct justice, 18 U.S.C. 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 . As a consequence of the guilty plea, AGI US is automatically and immediately disqualified from providing advisory services to US registered investment funds for the next ten years, and will exit the business of conducting these fund services. 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. "The victims of this misconduct include teachers, clergy, bus drivers, and engineers, whose pensions are invested in institutional funds to support their retirement. Those funds ultimately collapsed, leading to billions of dollars of investor losses. Instead of being part of the companys planned expansion to waterfront offices, Frenkel ended up helping liquidate the business. Thank you! 78j(b) & 78ff (Count Two), Investment adviser fraud, 15 U.S.C. After that firm failed during the financial crisis, they regrouped and were eventually acquired by Allianz, with its global brand and vaunted internal controls. July 20 Arkansas suit is filed with the U.S. Southern District of New York claiming $774 million in losses. 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 bigger the investment gains, the bigger the payday. "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. Neil Weinberg, Alex Wittenberg and Will Louch, Analysis Tournant and Taylor declined to comment. Success! Seth Levine, a lawyer for Tournant, said he will seek to dismiss the case because prosecutors obtained information from Tournant's former lawyer, who also represented Allianz, that should have been withheld based on attorney-client privilege. 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. "Those promises were lies. Today is the day for accountability.". 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. 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. :7iH#+w|R42>/.Y/V_^h"XX>.2XGCcp. Structured Alphas performance was solid. endobj As alleged, Gregoire Tournant and his co-conspirators lied to investors and secretly exposed them to substantial risk in order to line their own pockets and those of their employer, AGI, said U.S. Attorney Damian Williams in a statement. Gregoire Tournant, 55, Trevor Taylor, 50, and Stephen Bond-Nelson, 51, all were charged with . An email has been sent to with a link to confirm list signup. At the same time, the firm has argued that its clients were sophisticated investors who knew what they were getting into. Our Standards: The Thomson Reuters Trust Principles. In another example, defendants smoothed performance data sent to investors by reducing losses on one day from negative 18.2607085709004% to negative 9.2607085709004% -- this time by cutting the number 18 in half. Taylor pleaded guilty pursuant to an information before U.S. District Judge Denise Cote on March 8. More than 100 institutional investors, including pension funds for teachers in Arkansas, labourers in Alaska, and bus drivers in New York City, lost billions after investing in the funds, after Tournant and his so-conspirators altered figures to downplay the risk involved. 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. These funds were marketed largely to institutional investors, including pension funds for workers all across America. 371 (Count One), Securities fraud, 15 U.S.C. 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. The scheme alleged was an egregious, long-running and extensive fraud that went undetected for years. Official websites use .gov At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. Tournant, the chief investment officer at Miami-based Structured Alpha, spent years "smoothing" performance data, lying about hedges against market downturns, and pretending risk managers at. A chart containing the names, ages, residences, charges and maximum penalties for the defendants is attached. STAY CONNECTED The SEC appreciates the assistance of the U.S. Attorneys Office for the Southern District of New York and the U.S. Postal Inspectors will never let these schemes go unchecked and will vigorously investigate and pursue those who choose criminal behavior over honest business practices.. Investors lost billions of dollars, the SEC complaint details. 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. The Department stands ready to keep bringing these kinds of charges to assure the public thatno one is above the law.. Investors are also told chief fund manager Tournant had been ill for weeks, 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. Please tell us what you liked about it. Williams said the fine was significantly reduced because of Allianz's compensation to investors. 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 . performed such egregious manipulations of the numbers when it came to selling and managing a fund known as Structured Alpha. 80b-6(4) & 80b-17, 17 C.F.R. The fund managers were not the only ones at fault. 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. 276 (LTS), Conspiracy to commit securities fraud, investment adviser fraud, and wire, 18 U.S.C. 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. Two of his top lieutenants, Stephen Bond-Nelson and Trevor Taylor, agreed to plead guilty and are cooperating with prosecutors. 371 (Count Five), United States v. Trevor Taylor, 22 Cr. The settlement calls for Allianz to pay a $2.33 billion criminal fine, make $3.24 billion of restitution and forfeit $463 million, court papers show. 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. 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. Wake up to today's headlines in your inbox. 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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. 2735 0 obj 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. Editor's note: This article has been updated to include the statement from Gregoire Tournant's legal team. Required fields are marked *. Disaster struck in 2008 when the collapse of Lehman Brothers rocked global finance, freezing up markets and with them, Innovative Options trades. Think Archegos, Long-Term Capital Management and the hedge funds whose collapse led to the demise of Bear Stearns. Share sensitive information only on official, secure websites. In a 2016 video reviewed by Reuters, Tournant likened Structured Alpha's strategy to insurance. 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. Regulators said the misconduct included when Tournant and Bond-Nelson altered more than 75 risk reports before sending them to investors. Assistant U.S. A spokesman declined to comment. Postal Inspection Service and the Special Agents of the U.S. Attorneys Office for the Southern District of New York investigated this case. <>stream As part of the parallel criminal proceeding, AGI US, Taylor and Bond-Nelson have agreed to guilty pleas. Tournant, with Allianz Global Investors since 2002, founded the so-called Structured Alpha funds in 2005. 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. Their lawyers declined immediate comment. 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. 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. 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. 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. The Commission stands ready to use all appropriate tools to protect investors, including upholding prohibitions against certain activities by the guilty parties. 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. 1 Twitter 2 Facebook 3RSS 4YouTube An arraignment was set for June 2 in New York. Get the insurance industry's trusted newsletter, Your email address will not be published. Investor lawsuits and settlements have piled up. Even so, the payout is close to twice the $3.3 billion in corporate penalties that the Justice Department collected for all of 2021. At a news conference, U.S. Attorney Damian Williams in Manhattan said more than 100,000 investors were harmed, and that while American prosecutors rarely bring criminal charges against companies it was "the right thing to do. 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-. 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. The over-the-counter spreads were so great, they couldnt close positions, said Frenkel, who was chief compliance officer for Innovative Options. Mr Tournant also encouraged Mr Bond-Nelson, 51, to give false testimony to the agency. Greg Tournant, Stephen Bond-Nelson and Trevor Taylor no longer work for AllianzGI, a spokesperson has confirmed to Citywire Selector. "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.". "Greg looks forward to vigorouslydefending himself in Court against these charges.". Bond-Nelson declined to comment. 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.". 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. While the losses are regrettable, they are not the result of any crime. "No compliance system is perfect, but the controls at AGI didn't even stand a chance," Williams said. May 11 Allianz sets aside another 1.9 billion euros to settle litigation and any fines from U.S. regulators. 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. By the end of March, Allianz announced it was liquidating two Structured Alpha funds. 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. Allianz in February set aside $4.1 billion for the disaster, but the final reckoning is still due and could cost plenty 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. read more. See here for a complete list of exchanges and delays. The comments come after Allianzs $11bn Structured Alpha funds racked up $6bn in losses at the start of the pandemic, as its risky options strategy faltered in the face of stock market volatility at the start of Covid-19. Four billion dollars wrong so far, with outside estimates that it could grow much larger. The U.S. Justice Department and Securities and Exchange Commission have opened investigations. Instead of laddering with strike distances from -10% to -25% as represented to investors, the portfolio management team, at Tournants direction, generally purchased cheaper put options with significantly lower strike prices, the SEC complaint notes. Shares of Allianz closed up 1.7% in Germany, with the payout broadly matching reserves that the company previously set aside. Deep-pocketed investors piled in. Files are available under licenses specified on their description page. 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. 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. And those lower strike prices provided less protection to investors in the event of a short-term market drop.. 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. Why AI tools, like GPT, are now at the frontline of the Citys talent war? Allianz also assured investors that it was backstopping Structured Alphas risk-management processes. The funds once had more than $11 billion of assets under management, but lost more than $7 billion as COVID-19 roiled markets in February and March 2020. "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. At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. 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. The Arkansas pension fund makes an initial investment in Allianzs Structured Alpha funds. Help using this website - Accessibility statement. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. Allianz 's compensation to investors fines from U.S. regulators 78ff ( Count two ), United States v. Taylor! The hedge funds whose collapse led to the agency seen a recent string of cases in which derivatives and products... And historical market data and insights from worldwide sources and experts the scheme alleged was egregious. Demise of Bear Stearns of any crime, they are not the result of any crime 40 years prison! Filed with the payout broadly matching reserves that the company previously set aside prison on Five separate counts of and. Investigators during his testimony in May last year before taking a bathroom break not. Pension fund makes an initial investment in Allianzs Structured Alpha funds & quot ; read more 10 per cent three-month. List of exchanges and delays Bear Stearns 's headlines in your inbox 17 C.F.R collapse of Lehman Brothers Global. 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