The US financial watchdog has told German financial services behemoth Allianz to pay $6bn (£4.8bn) after charging three of its senior executives with fraud in relation to the $11bn collapse of the firm’s Structured Alpha funds.
Allianz agreed to pay $1bn to the US Securities and Exchanges Commission (SEC) and a further $5bn to investors, after the funds racked up massive losses of more than $5bn in the early days of the pandemic.
The SEC said Allianz concealed the “immense” risks of its complex options strategy, as it accused three former senior executives of running a “massive fraudulent scheme” that saw 114 institutional investors – including pension funds for teachers, priests, and bus drivers – lose billions.
In a complaint filed to a New York court, the US watchdog accused lead portfolio manager Gregoire P. Tournant of orchestrating a multi-year scheme to mislead a consortium of investors, who invest $11bn in the funds and paid $550m in fees to do so.
The watchdog also said Tournant and two other Allianz executives, Trevor Taylor and Stephen Bond-Nelson, manipulated financial reports to conceal the magnitude of investors risk.
The SEC noted that in one risk report, outlining a market crash scenario, the ex-Allianz portfolio managers altered a figure by changing it from -42.1505489755747 per cent to -4.1505489755747 per cent.
In another case, the three men “smoothed” out the performance data, by halving losses suffered from -18.2607085709004% to -9.2607085709004%.
Following the collapse of the funds, the portfolio managers continued “their pattern of deceit” by lying to the SEC in a bid to conceal their actions, SEC director Gurbir Grewal said.
“This case once again demonstrates that even the most sophisticated institutional investors, like pension funds, can become victims of wrongdoing.”
The SEC said that as a result of its admissions, Allianz’s asset management subsidiary Allianz GI will face an automatic 10-year ban from providing advisory services to US registered investment funds.
The fines come after Allianz set aside an extra €1.9bn (£1.6bn) last week, in addition to the €3.7bn it set aside in February, to cover the cost of lawsuits arising from the collapse of its Structured Alpha funds.