Allianz Agrees to Pay Over $1 Billion to Resolve SEC Charges, Sell Fund Business

The SEC charged Allianz Global Investors U.S. LLC (AGI US) and three former senior portfolio managers in connection with an unregistered funds scheme that concealed the downside risks of a complex options trading strategy they called “Structured Alpha.” AGI US marketed and sold the strategy to approximately 114 institutional investors, including pension funds for teachers, clergy, bus drivers, engineers, and other individuals, the SEC said in its press release.  After the COVID-19 market crash of March 2020 exposed the fraudulent scheme, the strategy lost billions of dollars as a result of AGI US and the portfolio managers’ misconduct. AGI US has agreed to pay billions of dollars as part of an integrated, global resolution, including more than $1 billion to settle SEC charges and together with its parent, Allianz SE, over $5 billion in restitution to victims.

The SEC’s complaint alleges that Structured Alpha’s Lead portfolio manager orchestrated the multi-year scheme to mislead investors who invested approximately $11 billion in Structured Alpha, and paid the defendants over $550 million in fees. It further alleges that, with assistance from the co-lead portfolio manager and portfolio manager, the lead PM manipulated numerous financial reports and other information provided to investors to conceal the magnitude of Structured Alpha’s true risk and the funds’ actual performance. 

According to the SEC, when the 2020 COVID-related market volatility revealed that AGI US and the defendants had misled investors about the unregistered fund’s level of risk, the fund suffered catastrophic losses and investors lost billions; the defendants all the while profited from their deception. The complaint further alleges that the PMs then made multiple, ultimately unsuccessful, efforts to conceal their misconduct from the SEC, including false testimony and meetings in vacant construction sites to discuss sending their assets overseas.

"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. 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," said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. "Following the crash of the Structured Alpha Funds, the defendants continued their pattern of deceit by lying to SEC staff and their fraud would have gone undetected if it weren’t for the persistence of SEC lawyers who pieced together the full scope of the massive fraud."

AGI US admitted that its conduct violated the federal securities laws and agreed to a cease-and-desist order, a censure and payment of $315.2 million in disgorgement, $34 million in prejudgment interest, and a $675 million civil penalty, a portion of which will be distributed to certain investors, with the amount of disgorgement and prejudgment interest deemed satisfied by amounts it paid to the U.S. Department of Justice as part of an integrated, global resolution. In a parallel criminal proceeding, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges for similar conduct against AGI US, and the PMs.  As part of the parallel criminal proceeding, AGI US, and two of the PMs have agreed to guilty pleas.  As a consequence of the guilty plea, AGI US is automatically and immediately disqualified from providing advisory services to US registered investment funds for the next ten years and will exit the business of conducting these fund services. Allianz has agreed to sell its fund business to Voya asset management.