A New York judge ordered a unit of Allianz SE to pay about $6 billion as punishment for misrepresenting the investment risk posed by a group of hedge funds that collapsed amid market fluctuations caused by the Covid-19 pandemic.
US District Judge Colleen McMahon imposed the sentence Wednesday in Manhattan on Allianz Global Investors US, which had agreed to the payout last year when it pleaded guilty to a single criminal charge of securities fraud as part of a deal with federal prosecutors. It ends an embarrassing chapter for the unit’s corporate parent, the German insurance giant.
“This is a sad and sorry state of affairs,” McMahon said in describing the criminal conduct admitted by AGI. “The amount of money that is being paid over and forfeited is astronomical, certainly in my experience.”
AGI was automatically disqualified from acting as an investment adviser or principal underwriter for any mutual fund or closed-end fund for 10 years. Allianz agreed last year to transfer most of AGI’s US assets to Voya Financial Inc. AGI planned to dissolve shortly after the sentencing, according to a July 5 letter to the judge by both sides.
In addition to the payments, AGI was sentenced to five years’ probation, which will be discontinued once it no longer exists, McMahon said.
Unusual Plea
The Allianz unit’s guilty plea is unusual for a major financial firm. Companies more often resolve government investigations by paying money and pledging corrective actions without admitting any wrongdoing. The judge said AGI is the first corporation she has sentenced in her 25 years on the bench.
Gregoire Tournant, the former chief investment officer and co-lead portfolio manager of the funds, was charged with fraud and conspiracy in connection with the funds’ meltdown. He has pleaded not guilty and is fighting the charges. Two other executives with the funds, Stephen Bond-Nelson and Trevor Taylor, pleaded guilty to conspiracy and fraud last year and are cooperating with prosecutors.
In the July 5 letter, both sides agreed that AGI did not voluntarily disclose the alleged misconduct to the government but has since cooperated with its investigation.
AGI US’s Structured Alpha funds were marketed as providing protection against a market crash. Instead, they ended up losing $7 billion during the tumultuous early days of the pandemic in 2020, spurring multiple lawsuits from pension plan investors.
Under the sentence, AGI was ordered to pay fines of $2.3 billion, $3.2 billion in restitution and to forfeit $463 million. It will receive credit for $1.9 billion already made over to victims of the fraud and for a $675 million civil penalty paid to the US Securities and Exchange Commission.
As the judge read through all the payment numbers, down to the cent, she added a $400 mandatory court assessment that is required when a corporation pleads guilty to a felony.
“That’s smaller than a rounding error in this particular case,” McMahon remarked.
The case is US v. Allianz Global Investors US, 22-cr-00279, US District Court, Southern District of New York (Manhattan).
(Adds sentence of probation in fifth paragraph.)