Bus drivers, subway conductors and religious and charitable organizations nationwide were among the victims when fraud sped up the downfall of private investment funds once worth $11 billion, causing a loss of $5 billion for investors, authorities said Tuesday.
Additional details were expected to be released at a news conference to announce conspiracy, securities fraud and obstruction of justice charges against Gregoire Tournant, the former chief investment officer for a series of funds at Allianz Global Investors, one of the world's largest financial services and insurance companies.
Allianz Global Investors US LLC, a New York City-based investment adviser, has agreed to plead guilty to its role in the fraud and pay $3.2 billion in restitution, a $2.3 billion fine and to forfeit $463 million, prosecutors said in a release.
The office of U.S. Attorney Damian Williams called it "one of the most significant corporate resolutions in history."
An indictment charged Tournant with defrauding investors in a series of investment funds managed by Allianz from 2014 through March 2020.
Tournant turned himself in Tuesday morning in Denver. A message for comment was sent to Tournant's attorney.
"Massive fraudulent scheme"
In a release, the Securities and Exchange Commission announced parallel civil charges against Allianz Global Investors U.S. LLC and three former senior portfolio managers.
It said they carried out a "massive fraudulent scheme that concealed the immense downside risks of a complex options trading strategy they called 'Structured Alpha.'"
The SEC said AGI US marketed and sold the strategy to about 114 institutional investors, including pension funds for teachers, clergy, bus drivers, engineers and others.
The fraud was exposed by the March 2020 market crash caused by the tumult to markets that resulted from the spread of the coronavirus, the SEC said. When the market dropped dramatically, the strategy marketed by AGI US lost billions of dollars due to misconduct by AGI US and the portfolio managers, according to the agency.
Gurbir S. Grewal, director of the SEC's Division of Enforcement, said in a release that the fraud caused investors to lose over $5 billion.
"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," he said in a statement. "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."
The company earned over $550 million in fees while "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," Grewal said.
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