United States Regulator Files Intent to Revoke License of Allianz Global Investors, Charged in 2022 with 3 Senior Portfolio Managers for Fraud to Conceal Complex Options Trading Strategy Called Structured Alpha in $11 Billion Fund Earning $550 Million in Fees, Fined $1 Billion and $5 Billion Payout to Investors
29th March 2023 | Hong Kong
United States regulator Commodity Futures Trading Commission (CFTC) has filed an intent to revoke the license of Allianz Global Investors, which was charged in 2022 alongside 3 former Senior Portfolio Managers for fraud to conceal complex options trading strategy called “Structured Alpha” in a $11 billion fund ($550 million fees earned), and is fined $1 billion and will make payout of $5 billion to investors. The fraud and portfolio managers’ misconduct was discovered following the COVID-19 market crash of March 2020 with the strategy losing billions of dollars. United States CFTC: “The SEC order found that AGI US, through three portfolio managers, engaged in a massive fraudulent scheme in which it made numerous misrepresentations and omissions to the institutional investors of funds that employed a complex securities options trading strategy called Structured Alpha. Specifically, the SEC order found that AGI US misrepresented to investors the significant downside risks and actual performance of the Structured Alpha funds. According to the SEC order, the 2020 COVID-related market volatility exposed AGI US’s scheme and revealed that the Structured Alpha funds and their investors suffered billions of dollars in losses as a result of AGI US’s misconduct.” See below for full statement.
“ United States Regulator Files Intent to Revoke License of Allianz Global Investors, Charged in 2022 with 3 Senior Portfolio Managers for Fraud to Conceal Complex Options Trading Strategy Called Structured Alpha in $11 Billion Fund Earning $550 Million in Fees, Fined $1 Billion and $5 Billion Payout to Investors “
United States Regulator Files Intent to Revoke License of Allianz Global Investors
21st March 2023 – The Commodity Futures Trading Commission today announced it has filed a Notice of Intent to Revoke the Registrations of Allianz Global Investors US LLC (AGI US), a Delaware limited liability company. The CFTC simultaneously issued an Opinion and Order accepting the settlement offer from AGI US and settling the action. The order revokes AGI US’s registrations with the CFTC as a commodity trading advisor and commodity pool operator.
Pursuant to the Commodity Exchange Act (CEA), the notice alleged AGI US was subject to statutory disqualification of its registrations based on a Securities and Exchange Commission (SEC) order that found AGI US violated multiple anti-fraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. In re Allianz Global Invs. U.S. LLC, SEC No. 3-20855, 2022 WL 1644317 (May 17, 2022) (SEC order).
The SEC order found that AGI US, through three portfolio managers, engaged in a massive fraudulent scheme in which it made numerous misrepresentations and omissions to the institutional investors of funds that employed a complex securities options trading strategy called Structured Alpha. Specifically, the SEC order found that AGI US misrepresented to investors the significant downside risks and actual performance of the Structured Alpha funds. According to the SEC order, the 2020 COVID-related market volatility exposed AGI US’s scheme and revealed that the Structured Alpha funds and their investors suffered billions of dollars in losses as a result of AGI US’s misconduct.
The CFTC’s order finds that AGI US is subject to statutory disqualification from registration with the CFTC pursuant to CEA Section 8a(2)(E)(i) and revokes AGI US’s registrations under the terms in the order. The CFTC thanks the National Futures Association for its assistance in this matter. The Division of Enforcement staff responsible for this matter are Stephen Turley, Paul M. Flucke, Rachel Hayes, Jeff Le Riche, Christopher Reed, Charles D. Marvine, and former staff member Daniel Contrastano.
United States SEC Charged Allianz Global Investors & 3 Senior Portfolio Managers for Fraud to Conceal Complex Options Trading Strategy Called Structured Alpha in $11 Billion Fund Earning $550 Million in Fees, Fined $1 Billion and $5 Billion Payout to Investors
19th May 2022 – The United States Securities & Exchange Commission (SEC) has charged Allianz Global Investors & 3 former Senior Portfolio Managers for fraud to conceal complex options trading strategy called “Structured Alpha” in a $11 billion fund ($550 million fees earned), and is fined $1 billion and will make payout of $5 billion to investors. The fraud and portfolio managers’ misconduct was discovered following the COVID-19 market crash of March 2020 with the strategy losing billions of dollars. United States SEC Chair Gary Gensler: ”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. The victims of this misconduct include teachers, clergy, bus drivers, and engineers, whose pensions are invested in institutional funds to support their retirement. This case once again demonstrates that even the most sophisticated institutional investors, like pension funds, can become victims of wrongdoing. Unfortunately, we’ve seen a recent string of cases in which derivatives and complex products have harmed investors across market sectors. The Commission stands ready to use all appropriate tools to protect investors, including upholding prohibitions against certain activities by the guilty parties. I’d like to thank and commend our staff for their excellent forensic work that uncovered this fraud and held the wrongdoers accountable.” Allianz Global Investors had sold the strategy to 114 institutional investors, including pension funds for teachers, clergy, bus drivers, engineers, and other individuals. View full statement below:
United States SEC Statement
SEC Charges Allianz Global Investors and Three Former Senior Portfolio Managers with Multibillion Dollar Securities Fraud. Allianz Global Investors Agrees to Pay More Than $1 Billion to Resolve SEC Charges.
17th May 2022 | 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. After the COVID-19 market crash of March 2020 exposed the fraudulent scheme, the strategy lost billions of dollars as a result of AGI US and the portfolio managers’ misconduct. 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.
“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. “The victims of this misconduct include teachers, clergy, bus drivers, and engineers, whose pensions are invested in institutional funds to support their retirement. This case once again demonstrates that even the most sophisticated institutional investors, like pension funds, can become victims of wrongdoing. Unfortunately, we’ve seen a recent string of cases in which derivatives and complex products have harmed investors across market sectors. The Commission stands ready to use all appropriate tools to protect investors, including upholding prohibitions against certain activities by the guilty parties. I’d like to thank and commend our staff for their excellent forensic work that uncovered this fraud and held the wrongdoers accountable.”
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. 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 Alpha’s true risk and the funds’ actual performance.
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 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.
When the 2020 COVID-related market volatility revealed that AGI US and the defendants had misled investors about the fund’s level of risk, the fund suffered catastrophic losses and investors lost billions; the defendants all the while profited from their deception. 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.
“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. While they were able to solicit over $11 billion in investments by the end of 2019 and earn over $550 million in fees as a result of their lies, they lost over $5 billion in investor funds when the market volatility of March 2020 exposed the true risk of their products,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “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 weren’t for the persistence of SEC lawyers who pieced together the full scope of the massive fraud.”
AGI US admitted that its conduct violated the federal securities laws and agreed to a cease-and-desist order, a censure and payment of $315.2 million in disgorgement, $34 million in prejudgment interest, and a $675 million civil penalty, a portion of which will be distributed to certain investors, with the amount of disgorgement and prejudgment interest deemed satisfied by amounts it paid to the U.S. Department of Justice as part of an integrated, global resolution. In a parallel criminal proceeding, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges for similar conduct against AGI US, Tournant, Taylor, and Bond-Nelson. As part of the parallel criminal proceeding, AGI US, Taylor and Bond-Nelson have agreed to guilty pleas.
The SEC’s complaint seeks permanent injunctions, disgorgement plus interest, and penalties against Tournant, Taylor, and Bond-Nelson. In addition, the complaint seeks an officer and director bar against Tournant. Taylor and Bond-Nelson have agreed to the entry of partial judgments against them in which they consent to injunctive relief with monetary relief to be determined by the court in the future. These settlements are subject to court approval. Taylor and Bond-Nelson also agreed to associational and penny stock bars.
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. 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 transition period will be ten weeks for the US mutual funds that AGI US sub-advises and four months for the US closed-end funds that AGI US advises.
The SEC’s investigation was conducted by Jonathan C. Shapiro and James F. Murtha, and supervised by Reid A. Muoio of the Complex Financial Instruments Unit. The litigation will be led by Timothy K. Halloran under the supervision of Melissa J. Armstrong. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the U.S. Postal Inspection Service.
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