Three Portfolio Managers and Allianz Global Investors U.S. Charged in Connection with Multibillion-Dollar Fraud Scheme | OPA

Allianz Global Investors U.S. LLC Also Charged with Securities Fraud, Agrees to Plead Guilty

An indictment was unsealed today in the Southern District of New York charging Gregoire Tournant, the Chief Investment Officer and co-lead Portfolio Manager for a series of private investment funds managed by Allianz Global Investors U.S. LLC (AGI), with securities fraud, investment adviser fraud and obstruction of justice offenses in connection with a scheme to defraud investors. Those funds ultimately collapsed, leading to billions of dollars of investor losses. Tournant surrendered to Postal Inspectors in Denver, Colorado, this morning and is expected to be presented later today. The case has been assigned to U.S District Court Judge Laura Taylor Swain.

Also unsealed today are the guilty pleas of Trevor Taylor and Stephen Bond-Nelson in connection with their respective roles in the scheme. Taylor pleaded guilty pursuant to an information before U.S. District Judge Denise Cote on March 8. Bond-Nelson pled guilty pursuant to an information before U.S. District Judge Paul A. Engelmayer on March 3. Both are cooperating with the government.

“I previously warned that the Department of Justice would crack down on corporate crime, without regard to size, salary or other privilege,” said Deputy Attorney General Lisa O. Monaco. “For the second time in under a month, the Department has brought charges in connection with a sophisticated Wall Street scheme that cost victims billions of dollars. Other corporations should take note that the results here are driven in part by the fact that this company failed to self-report their crimes. The Department stands ready to keep bringing these kinds of charges to assure the public that no one is above the law.”

U.S. Attorney Damian Williams for the Southern District of New York and Inspector-in-Charge Daniel B. Brubaker of the New York Office of the U.S. Postal Inspection Service also announced today a plea agreement (the agreement) pursuant to which AGI will plead guilty to securities fraud in connection with this fraudulent scheme, and pay more than $3 billion in restitution to the victims of this fraud, pay a criminal fine of approximately $2.3 billion, and forfeit approximately $463 million to the government. The case has been assigned to U.S. District Judge Colleen McMahon. A conference has been scheduled for today at 3:00 p.m. before U.S. District Court Judge Loretta A. Preska, at which time AGI is expected to plead guilty to an information pursuant to the agreement.

“As alleged, Gregoire Tournant and his co-conspirators lied to investors and secretly exposed them to substantial risk in order to line their own pockets and those of their employer, AGI,” said U.S. Attorney Williams. “Pensions funds for so many retirees, religious organizations and essential workers – from laborers in Alaska, to teachers in Arkansas, to bus drivers and subway conductors here in New York City – invested with AGI because they were promised a relatively safe investment with strict risk controls. But AGI, the ‘master cop’ that Tournant claimed was watching over his shoulder, making sure that he adhered to his promises, was asleep on the beat. And when the storm came in March 2020, when the COVID-19 crash hit, these investors got soaked and lost billions. Today’s actions are further evidence that this office is not asleep on the beat and that with our law enforcement partners we will act swiftly to protect investors and bring white collar criminals to justice.”

“These individuals working under the name of Allianz Global Investors, an international management firm, allegedly took advantage of its global recognition when they devised a scheme to mislead investors leading to the loss of billions of dollars,” said Inspector-in-Charge Daniel B. Brubaker of the New York Office of the U.S. Postal Inspection Service. “Postal Inspectors will never let these schemes go unchecked and will vigorously investigate and pursue those who choose criminal behavior over honest business practices.”

According to the allegations in the indictment and the agreement unsealed today in Manhattan federal court:

Between 2014 and 2020, Gregoire Tournant, the defendant, was the Chief Investment Officer of a set of private funds at AGI known as the Structured Alpha Funds. These funds were marketed largely to institutional investors, including pension funds for workers all across America. As alleged, Tournant and his co-conspirators misled these investors into believing that the funds were protected from a sudden stock market crash with particular hedges. But in late 2015, as the cost of those promised hedges increased, Tournant decided to lie and secretly buy cheaper hedges that provided much less protection to investors. As alleged, Tournant and his co-conspirators also provided investors with altered documents that were sent to investors to hide the true riskiness of the funds’ investments, including that they were buying cheaper hedges.

In March 2020, following the onset of market dislocations brought on by the COVID-19 pandemic, the funds lost in excess of $7 billion in market value, including over $3.2 billion in principal, faced margin calls and redemption requests, and ultimately were shut down. More than 100 institutional investors, representing more than 100,000 individuals, were victims of this scheme. These institutional investors included, among others, pension funds for teachers in Arkansas, laborers in Alaska, bus drivers and subway conductors in New York City, as well as religious organizations, engineers, and other individuals, universities and charitable organizations across the United States.

The scheme alleged was an egregious, long-running and extensive fraud that went undetected for years. It occurred at a very profitable component of AGI – one that accounted for 25% of AGI’s revenue in recent years, which amounted to hundreds of millions of dollars. As alleged, one of the ways Tournant carried out the fraud was by marketing the fact that he worked for a well-respected financial institution, AGI, which is a part of the Allianz SE (Allianz) family. Allianz is one of the world’s largest financial services companies and one of the world’s largest insurance companies. Tournant touted the protections provided by the funds’ position within the global Allianz corporate structure, calling Allianz a “master cop” that would ensure that Tournant followed the risk guidelines promised to investors.

Despite Tournant’s claim that Allianz acted as a “master cop” looking over his shoulder, no one at AGI or Allianz was verifying that Tournant and his colleagues were actually adhering to the investment strategies promised to investors. No risk or compliance personnel at AGI verified, attempted to verify or were responsible for verifying that Tournant and his colleagues were purchasing hedging positions within the range that was represented to investors. Much of this historic fraud was made possible because AGI’s control environment was not designed to verify that Tournant and his co-conspirators were telling investors the truth. Because AGI, a registered investment adviser, failed to provide meaningful oversight, Tournant and his co-conspirators were able to deceive investors about the risks they were taking with their money.

In addition, as alleged, in the summer of 2020, after the onset of the pandemic and in order to cover up the fraudulent scheme, Tournant attempted to obstruct an investigation by the U.S. Securities and Exchange Commission (SEC) into the circumstances that led to the losses in March 2020.

As the introductory phrase signifies, the entirety of the text of the indictment and the description of the indictment set forth in this release constitute only allegations, and every fact described should be treated as an allegation.

A chart containing the names, ages, residences, charges and maximum penalties for the defendants is attached.

The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.

The U.S. Postal Inspection Service and the Special Agents of the U.S. Attorney’s Office for the Southern District of New York investigated this case. The U.S. Securities and Exchange Commission filed a parallel civil action today.

This case is being handled by SDNY’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Margaret Graham, Gina Castellano, Nicholas Folly and Richard Cooper are in charge of the prosecution.

The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

Defendant

Age

Residence

Charges

Maximum Potential Sentence(s)

United States v. Gregoire Tournant, 22 Cr. 276 (LTS)

TOURNANT

55

 

Basalt, Colorado

Conspiracy to commit securities fraud, investment adviser fraud, and wire, 18 U.S.C. § 371 (Count One)

 

Securities fraud, 15 U.S.C. §§ 78j(b) & 78ff (Count Two)

 

Investment adviser fraud, 15 U.S.C. §§ 80b-6 & 80b-17 (Count Three)

 

Investment adviser fraud, 15 U.S.C. §§ 80b-6(4) & 80b-17, 17 C.F.R. § 275.206(4)-8 (Count Four)

 

Conspiracy to obstruct justice, 18 U.S.C. § 371 (Count Five)

5 years

 

20 years

 

 

5 years (on each count)

 

 

5 years

 

 

5 years

United States v. Trevor Taylor, 22 Cr. 149 (DLC)

TAYLOR

49

Miami, Florida

Conspiracy to commit securities fraud, investment adviser fraud, and wire fraud, 18 U.S.C. § 371 (Count One)

 

Securities fraud, 15 U.S.C. §§ 78j(b) & 78ff (Count Two)

 

Investment adviser fraud, 15 U.S.C. §§ 80b-6 & 80b-17 (Count Three)

5 years

 

20 years

 

5 years

United States v. Stephen Bond-Nelson, 22 Cr. 137 (PAE)

BOND-NELSON

51

Berkeley Heights, New Jersey

Conspiracy to commit securities fraud, investment adviser fraud, and wire fraud, 18 U.S.C. § 371 (Count One)

 

Securities fraud, 15 U.S.C. §§ 78j(b) & 78ff (Count Two)

 

Investment adviser fraud, 15 U.S.C. §§ 80b-6 & 80b-17 (Count Three)

 

Conspiracy to obstruct justice, 18 U.S.C. § 371 (Count Four)

5 years

 

20 years

 

5 years

 

5 years

United States v. Allianz Global Investors U.S. LLC

AGI US

 

 

Securities Fraud, 15 U.S.C. §§ 78j(b) & 78ff (Count Two)

5 years’ probation

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