SEC Reaches Multibillion-Dollar Settlement with Allianz Global

Allianz Global Investors U.S. LLC reached a $6 billion deal with the U.S. Securities and Exchange Commission (SEC) resolving claims tied to a scheme that saw investors lose billions after the Covid-19 pandemic crippled U.S. markets. 

Pension funds for teachers, clergy, bus drivers, engineers, and other investors were defrauded, with losses and downside risks concealed for years, according to a statement released by SEC Chair Gary Gensler. The case marks the latest white-collar crackdown under the Biden administration that targeted corporate employees and required an admission of guilt. The policy change shifts away from non-prosecution or deferred-prosecution agreements used in the past.

“The commission stands ready to use all appropriate tools to protect investors, including upholding prohibitions against certain activities by the guilty parties,” Gensler added. 

According to an SEC complaint filed Tuesday in the U.S. District Court for the Southern District of New York, Gregoier Tournant, Trevor Taylor, and Stephen Bond-Nelson developed a trading and options program for Allianz Global called “Structured Alpha.” The program involved  manipulating financial reports and other information provided to investors, while failing to properly report the true risk involved or the funds’ actual performance.

Documents point to a system of shifting decimal points used in reporting, as well as halving reported losses, with an aim of “smoothing” performance data. 

The scheme got worse when Covid-19 hit markets and the funds suffered “catastrophic losses.” The complaint says efforts to further conceal the scheme from the SEC involved false testimony and meetings to discuss sending assets overseas to vacant construction sites.

“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, [the defendants] 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 enforcement division. 

Taylor and Bond-Nelson plead guilty to the charges and will face yet-to-be court-approved monetary damages. Tournant was taken into custody Tuesday morning. He faces an officer and director bar as well as unspecified damages. 

Allianz also admitted fault and agreed to end the program and pay $315.2 million in disgorgement, $34 million in prejudgment interest, and a $675 million civil penalty. Portions of the penalties and fees will be returned to investors. The defendants will also face a 10-year ban on providing advisory services to U.S. registered investment funds. Attempts to reach defendants’ representation were not returned by press time. 

From: The National Law Journal