One of the largest settlements in corporate history, Allianz Global Investors U.S. LLC has agreed to plead guilty to securities fraud and pay more than US$6 billion to settle allegations. The SEC said the firm misrepresented its Structured Alpha strategy to over 100 institutional investors, including pension funds for teachers and bus drivers, by understating the funds' risks. According to authorities, the alleged fraud sped up the downfall of private investment funds once worth $11 billion, causing a loss of $5 billion for investors across the US.
The guilty plea carries a 10-year ban on Allianz Global Investors' providing advisory services to any investment funds registered in the US. However, the SEC has shared that it will allow a “brief transition period” to avoid any disruptions to the funds that it does currently serve. In that period, Allianz Global will transfer its U.S. investment teams and assets to Voya Investment Management in exchange for up to a 24% equity stake in the company.
The company will pay $3.2 billion in restitution, a $2.3 billion fine and to forfeit $463 million. The office of US Attorney Damian Williams called it "one of the most significant corporate resolutions in history". The payout is almost twice the $3.3 billion in corporate penalties that the US Justice Department collected for all of 2021.
Three former fund managers were accused of hiding the risk of a complex trading strategy that was exposed when COVID-19 hit. In a risk report to investors, the SEC alleges Allianz Global should have shown losses under a market crash scenario of 42.15% but the report somehow dropped a digit and reported the potential loss of only 4.15%.
The then-Chief Investment Officer, Gregoire Tournant, was indicted for fraud, conspiracy and obstruction. There were related charges for co-lead portfolio manager, Trevor Taylor, and portfolio manager, Stephen Bond-Nelson, who were accused of manipulating disclosure to investors to conceal the strategy’s true risk and the funds’ actual performance.
The three men and the firm were also charged in a parallel criminal proceeding by the US Attorney’s office for the Southern District of New York. Meanwhile, investors have also filed more than two dozen of their own lawsuits against Allianz.