Allianz Global Investors U.S., the U.S.-based asset management arm of German insurer Allianz SE, has agreed to pay billions of dollars as part of an integrated global resolution, including more than $1 billion to settle Securities and Exchange Commission charges and, together with its parent, Allianz SE, over $5 billion in restitution to victims
The SEC charged that the firm and three former senior portfolio managers conducted what the agency called “a massive fraudulent scheme” that cost investors more than $5 billion in losses.
The scheme involved a trading strategy called “Structured Alpha,” which used complex options trading to earn returns for investors. However, the perpetrators of the scam did not reveal the potential immense downside risks of this trading strategy to investors. In March 2020, when the COVID-19 pandemic caused markets to crash, the losses were dramatic. Approximately 114 institutional investors bought the investment product and paid more than $550 million in fees, according to the SEC press release.
Institutional investors that sued or filed complaints against Allianz included the Arkansas Teacher Retirement System, the Employees’ Retirement System of Milwaukee, San Diego City Employees’ Retirement, Chicago Laborers Pension and Welfare Funds, Raytheon, Blue Cross Blue Shield, the Metropolitan Transit Authority Pension Funds and the J. Paul Getty Trust.
“This case once again demonstrates that even the most sophisticated institutional investors, like pension funds, can become victims of wrongdoing,” said SEC Chairman Gary Gensler in the commission’s release. “Unfortunately, we’ve seen a recent string of cases in which derivatives and complex products have harmed investors across market sectors.”
As a consequence of pleading guilty, AGI U.S. is automatically and immediately disqualified from providing advisory services to U.S.-registered investment funds for the next ten years and will exit the business. Allianz SE plans to sell most of the U.S. piece of Allianz Global Investors to Voya Investment Management.
Voya Investment Management will add about $120 billion of assets under management as well as some investment teams, the company said in a statement. Allianz will take a 24% stake in Voya IM.
The funds will transition over a period of up to ten weeks for the U.S. mutual funds that AGI U.S. sub-advises and four months for the U.S. closed-end funds that AGI U.S. advises, according to the SEC.
The Case
The SEC’s complaint, filed in the U.S. 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. The SEC’s complaint further alleges that, with assistance from Co-Lead Portfolio Manager Trevor L. Taylor and Portfolio Manager Stephen G. Bond-Nelson, Tournant manipulated numerous financial …….
Source: https://www.plansponsor.com/pensions-will-recoup-losses-allianz-structured-alpha-investments/