Allianz Unit to Plead Guilty, Pay Billions Over Funds' Losses
What You Need to Know
The firm will forfeit $463 million and pay $3.2 billion in restitution to investors in its Structured Alpha Funds, as well as a $2.3 billion penalty.
In addition, AGI will pay a civil penalty under an anticipated settlement with the U.S. Securities and Exchange Commission.
A unit of Allianz SE agreed to plead guilty to fraud in the implosion of a group of investment funds that lost $7 billion.
The agreement by Allianz Global Investors US, a New York investment adviser wholly owned by Allianz SE, came as Gregoire Tournant, a former executive with the firm, was charged in an alleged scheme to defraud investors.
Manhattan U.S. Attorney Damian Williams in Manhattan announced the agreement and indictment Tuesday.
The agreement, under which AGI will plead guilty to a single count of securities fraud, calls for the firm to forfeit $463 million and pay $3.2 billion in restitution to victims of the fraud as well as a $2.3 billion penalty. It will get a credit for $1.9 billion that has already been paid to victims.
In addition, AGI will pay a civil penalty under an anticipated settlement with the U.S. Securities and Exchange Commission.
Risk Mitigation
Tournant, the former chief investment officer and co-lead portfolio manager of the Structured Alpha Funds, and others overstated the level of independent oversight that AGI was providing, misrepresented hedging and other risk mitigation strategies and altered documents to hide the riskiness of the funds, according to prosecutors.
“As a result of this scheme to defraud, investors’ funds were exposed to higher risk than promised, and investors were deprived of information about the true risks to which their investments were exposed,” according to the Tournant’s indictment.
Allianz had set aside 5.6 billion euros ($5.9 billion) to resolve the lawsuits and government probes tied to the funds. The charges are a “fair estimate” of the exposure, the company said earlier this month. All charges announced Tuesday are covered by the provisions, an Allianz spokesman said.
AGI is due to make the forfeiture payment on Wednesday and will make the restitution payments within a week into an escrow account that will be distributed to victims.
‘Master Cop’
“No one at AGI US or Allianz was verifying that Tournant and his colleagues were actually adhering to the investment strategies promised to investors,” according to Tournant’s indictment.
“For example, no risk or compliance personnel at AGI US 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, or adhering to other agreed upon risk mitigation strategies, including those specifically promised to the funds’ largest investor,” it explained.
