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. 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. 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. He was at the top of the class, and his work was excellent in all respects. Even when, in 2017, internal auditors uncovered red flags, they assigned product specialists whose pay was tied to the groups performance to follow up. 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. The bigger the investment gains, the bigger the payday. Editor's note: This article has been updated to include the statement from Gregoire Tournant's legal team. Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. 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. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. x+ | <>stream Automobile Diminished Value: Is THAT Covered. Help using this website - Accessibility statement. 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. . read more. Assistant U.S. Both are cooperating with the government. (Reporting by Tom Sims; editing by Tomasz Janowski). 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. 6LinkedIn 8 Email Updates. Even so, the payout is close to twice the $3.3 billion in corporate penalties that the Justice Department collected for all of 2021. 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. 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. 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. Two of his colleagues have worked with him since the group's founding. See here for a complete list of exchanges and delays. That change was not disclosed to investors, prosecutors allege. The industry leader for online information for tax, accounting and finance professionals. Gregoire Tournant, 55, Trevor Taylor, 50, and Stephen Bond-Nelson, 51, all were charged with a massive fraudulent scheme, as described in an SEC press release. Taylor and Bond-Nelson also agreed to associational and penny stock bars. The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty. At the same time, the firm has argued that its clients were sophisticated investors who knew what they were getting into. Instead of employing the usual formula for hedge-fund fees the "2 and. 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. New York City | He was a hedge fund manager supposedly under the watchful eye of a master cop an Allianz unit that policed his every move. Lead manager Greg Tournant joined Allianz in 2002 and started the structured products group in 2005. 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. 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? Inbounds slide triggered at Snowmass; no one believed to be caught, FAA official: Changes needed at Aspen airport, Roaring Fork Valley Republican aims to unseat Boebert in primary, Mother Lode commercial space sells for $7M, Yogis and city of Aspen sign on the dotted line. 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. Allianz is one of the worlds largest financial services companies and one of the worlds largest insurance companies. At Allianz Global Investors U.S., Tournant and his Structured Alpha team were incentivized to pursue outsized returns. 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.. Our Standards: The Thomson Reuters Trust Principles. 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.. Portfolio managers Greg Tournant, Stephen Bond-Nelson and Trevor Taylor no longer work for Allianz Global Investors, a spokesperson has confirmed to Citywire Selector. May The U.S. Department of Justice approaches Allianz for information on the funds. The other two portfolio managers - Stephen Bond-Nelson, 51, of Berkeley Heights, New Jersey; and Trevor Taylor, 49, of Miami - agreed to plead guilty to fraud and conspiracy, and cooperate with prosecutors. Instead of employing the usual formula for hedge-fund fees the "2 and. Investors allege Allianz and Structured Alpha abandoned risk controls and turned a challenging situation into a disaster by doubling down on a bad strategy. Wake up to today's headlines in your inbox. Who has been hit hardest by 21bn of pandemic fraud, and will the taxpayer EVER get it back? By December 2019, Structured Alpha had grown to more than $10 billion, according to a person familiar with the matter. March 11, 2022 at 01:54 PM 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. 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. She can be reached at megan@aspendailynews.com or on Twitter @MeganTackett10. Tournant himself was heavily invested in the funds he managed and lost money along with clients, according to a person familiar with the matter. 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.. 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. 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. 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. These funds were marketed largely to institutional investors, including pension funds for workers all across America. Aug. 4 Allianz discloses that the SEC is investigating. While regrettable, the losses are not the result of any crime, they said. Prosecutors said the parent company played no role in the fraud and learnt of it only after the pandemic hit. 3 Ways to Steer Clients Through a Challenging Economy. Reports 2021 profit was the lowest since 2013. 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. At Allianz Global Investors U.S., Tournant and his Structured Alpha team were incentivized to pursue outsized returns. For the discerning eye, the latter number is exactly half of the former. The Aspen Daily News has chronicled Tournants real estate dealings with Snowmass Club condominium properties in, Tournant faces charges of conspiracy, securities fraud and obstruction of justice charges. 275.206(4)-8 (Count Four), Conspiracy to obstruct justice, 18 U.S.C. I would enthusiastically recommend him for any computer engineering position." 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. 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 The conviction carried a 10-year ban on Allianz Global Investors providing advisory services to U.S.-registered investment funds. 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 Allianz Global Investors US were carefully monitoring his every move, prosecutors charged in an indictment. 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. Those funds ultimately collapsed, leading to billions of dollars of investor losses. Germanys Allianz has agreed to pay about $6 billion and its U.S. asset management unit will plead guilty to fraud after a group of its multibillion investment funds collapsed amid market turmoil triggered by the coronavirus pandemic in 2020. As star performers at Allianz Global Investors US, Mr Tournant and Mr Taylor each earned $US51.3 million from 2016 to 2020 and Mr Bond-Nelson made $US12 million, according to the SEC. These funds were marketed largely to institutional investors, including pension funds for workers all across America. And those lower strike prices provided less protection to investors in the event of a short-term market drop.. Unfortunately, weve seen a recent string of cases in which derivatives and complex products have harmed investors across market sectors. 80b-6 & 80b-17 (Count Three), Investment adviser fraud, 15 U.S.C. 276 (LTS), Conspiracy to commit securities fraud, investment adviser fraud, and wire, 18 U.S.C. July 21 Allianz publishes a paper saying that losses were not the result of any failure in the portfolios investment strategy or risk management processes. It has since been removed from the web. Subscribe to the City A.M. newsletter to have our top stories delivered directly to your inbox. Get Free Insurance Industry News Updates Delivered to Your Email! 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. 1 Twitter 2 Facebook 3RSS 4YouTube United States v. Gregoire Tournant, 22 Cr. There was a problem saving your notification. 2007 Arkansas' pension fund for retired teachers - which would later be the. How Do I Establish My Value with Prospects? 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. Additional reporting by Luc Cohen in New York Former colleagues have turned on him, as has Allianz. Feb. 3 Mohamed El-Erian, Chief Economic Advisor at Allianz, warns CNBC viewers not to buy the dip because the coronavirus crisis was without precedent. Also unsealed today are the guilty pleas of Trevor Taylor and Stephen Bond-Nelson in connection with their respective roles in the scheme. 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. By the end of March, Allianz announced it was liquidating two Structured Alpha funds. Investigators said the misrepresentations began in 2014, and helped Allianz generate more than $400 million of net profit. Create an alert to follow a developing story, keep current on a competitor, or monitor industry news. 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. The bigger the investment gains, the bigger the payday. Tournant, with Allianz Global Investors since 2002, founded the so-called Structured Alpha funds in 2005. More than 100 institutional investors, representing more than 100,000 individuals, were victims of this scheme. The committee claimed Aon touted Structured Alpha as late as 2019 as one of its "highest conviction strategies," even as it failed to properly monitor the Allianz funds or find fraud under its nose. 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. The group still operates 25 funds in its Structured Alpha family. Our Standards: The Thomson Reuters Trust Principles. % Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. 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. 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. Greg Byrd "Linas was in my C programming class (ECE 209) at NC State University. Allianz's guilty plea carries a 10-year ban on Allianz Global Investors' providing advisory services to U.S.-registered investment funds. 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. 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. Instead of being part of the companys planned expansion to waterfront offices, Frenkel ended up helping liquidate the business. Allianz, which also owns bond powerhouse Pacific Investment Management Co., has resolved some of its legal woes, including a February settlement with a majority of investors for undisclosed terms. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. Their lawyers declined immediate comment. Tournant, with Allianz Global Investors since 2002, founded the so-called Structured Alpha funds in 2005. A chart containing the names, ages, residences, charges and maximum penalties for the defendants is attached. Please tell us what you liked about it. Allianz also assured investors that it was backstopping Structured Alphas risk-management processes. At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. But when the pandemic hit, everything went haywire. Feb. 17 Allianz says it will set aside 3.7 billion euros ($3.90 billion) to deal with investigations and lawsuits. read more. Shares of Allianz closed up 1.7% in Germany, with the payout broadly matching reserves that the company previously set aside. Taylor and Bond-Nelson both entered guilty pleas, but the man allegedly at the head of the years-long fraud Tournant, former chief investment officer of Allianz is fighting the charges, according to national reports. 149 (DLC), Conspiracy to commit securities fraud, investment adviser fraud, and wire fraud, 18 U.S.C. Tournant and Taylor prospered at Allianz during the long bull market that followed the Great Recession. An email has been sent to with a link to confirm list signup. 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. 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. March 27 Allianz says it remains committed to the fund franchise and the remaining funds are now well positioned, but Aon issues another report recommending a sell.. They included dozens of public and private pension plans for the likes of Blue Cross & Blue Shield and New Yorks Metropolitan Transportation Authority. The over-the-counter spreads were so great, they couldnt close positions, said Frenkel, who was chief compliance officer for Innovative Options. Postal Inspection Service. Reuters, the news and media division of Thomson Reuters, is the worlds largest multimedia news provider, reaching billions of people worldwide every day. "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. :7iH#+w|R42>/.Y/V_^h"XX>.2XGCcp. Investors lost billions of dollars, the SEC complaint details. "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," they continue. According to an initial report by Bloomberg, the trio used to manage structured alpha hedge funds, but all left the company in December 2021, according to company filings. Its namesake arena near its Munich headquarters, meanwhile, houses Bayern Munich, one of world's best-known soccer teams. At the center of the debacle is Greg Tournant, 55, an equity-options whiz and one-time McKinsey & Co. consultant. The Aspen Daily News has chronicled Tournants real estate dealings with Snowmass Club condominium properties in 2016, 2017 and 2019. Share & Print. Catch up on the week's most-read stories. Feb. 28 A number of big investors file to end their lawsuits. % of people found this article valuable. a massive fraudulent scheme, as described in an SEC press release. Allianz Global Investors US LLC was accused of misleading pension funds for teachers, bus drivers, engineers, religious groups and others by understating the funds' risks, and having "significant gaps" in its oversight. The Commission stands ready to use all appropriate tools to protect investors, including upholding prohibitions against certain activities by the guilty parties. 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 three men were also sued by the Securities and Exchange Commission. 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. 137 (PAE), Conspiracy to obstruct justice, 18 U.S.C. Perfect Sunday reading. Allianz is still grappling with the fallout. Its every investors dream: Make money when markets go up, and when markets go down, and even when markets go practically nowhere. Allianz, which also owns bond powerhouse Pacific Investment Management Co., has resolved some of its legal woes, including a February settlement with a majority of investors for undisclosed terms. 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. 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. Get alerted any time new stories match your search criteria. The cooperation of Mr Taylor and Mr Bond-Nelson was not assured. read more. Thats according to the Arkansas Teacher Retirement System, which in February settled a suit over its Structured Alpha losses for $643 million. This material may not be published, broadcast, rewritten, or redistributed. Its every investors dream: Make money when markets go up, and when markets go down, and even when markets go practically nowhere. The industry leader for online information for tax, accounting and finance professionals. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. In addition, the complaint seeks an officer and director bar against Tournant. Those investors included pension funds for teachers, clergy, bus drivers, engineers and others, the vast majority of whom live and work in the United States.. Thats the allegation both the U.S. Justice Department and the U.S. Security and Exchange Commission make in an indictment released Tuesday. Mr Bond-Nelson lied repeatedly to SEC investigators during his testimony in May last year before taking a bathroom break and not returning. 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. 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. This case once again demonstrates that even the most sophisticated institutional investors, like pension funds, can become victims of wrongdoing. "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.". 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. The Securities and Exchange Commission (SEC) today charged Allianz Global Investors U.S. LLC (AGI US) and three former senior portfolio managers with a massive fraudulent scheme that concealed the immense downside risks of a complex options trading strategy they called Structured Alpha. AGI US marketed and sold the strategy to approximately 114 institutional investors, including pension funds for teachers, clergy, bus drivers, engineers, and other individuals. As part of the parallel criminal proceeding, AGI US, Taylor and Bond-Nelson have agreed to guilty pleas. 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 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. 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. The U.S. Justice Department and Securities and Exchange Commission have opened investigations. While the losses are regrettable, they are not the result of any crime. The Arkansas pension fund makes an initial investment in Allianzs Structured Alpha funds. The result was a massive fraud that cost investors $US7 billion ($10 billion), they say. Japan's Nissan Motor on Tuesday unveiled a new electric sport-utility vehicle (SUV) at the Shanghai auto show as it pledged its commitment to the Chinese auto market, which it said was likely to continue to pioneer the rise of electric cars. 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 Bloomberg. You have permission to edit this article. The U.S.-French citizen appeared briefly in Denver federal court, and was released after agreeing to post a $20 million bond. Structured Alphas performance was solid. Information is just a click away. July 20 Arkansas suit is filed with the U.S. Southern District of New York claiming $774 million in losses. Postal Inspectors will never let these schemes go unchecked and will vigorously investigate and pursue those who choose criminal behavior over honest business practices.. 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. Follow the topics, people and companies that matter to you. 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. MAY 17 The DOJ announces Allianz has agreed to pay about $6 billion and its U.S. asset management unit will plead guilty to fraud. Prosecutors and regulators revealed new details of how they say Mr Tournant, Mr Taylor, and Mr Bond-Nelson duped investors, consultants, colleagues and auditors. 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. 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. The multiyear, multibillion-dollar scheme was simple in concept but complicated in practice, especially for those uninitiated with Wall Street. Mr Tournants group used equity-based options to market what he said was an all-weather strategy that would protect investors from losses in good times and bad. Get the insurance industry's trusted newsletter, Your email address will not be published. State University was chief compliance officer for Innovative Options in may last year before taking a bathroom break and returning! 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