Allianz SE has announced that its US asset management unit will plead guilty to criminal securities fraud in relation to the collapse of its Structured Alpha Funds in 2020, and will pay more than $6 billion in charges.
The settlement with the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) includes a $2.33 billion criminal fine, $3.24 billion of restitution and a forfeit of $463 million, according to court documents.
The unit in question – Allianz Global Investors US LLC (AGI US)– was charged with misrepresenting the performance of the Structured Alpha Funds to pension funds and other investors.
Prosecutors alleged that managers failed to implement measures designed to protect the fund against market volatility and overstated its returns to boost their pay.
As a result, the funds collapsed amid the turbulent financial market conditions that characterized the early days of the COVID-19 pandemic, losing more than $7 billion in a matter of weeks.
For its part, Allianz maintains that the criminal misconduct at AGI US was limited to “a handful of individuals” in the structured products team who are no longer employed by the company.
Among these was former Chief Investment Officer Gregoire Tournant, who is also being charged with fraud, conspiracy and obstruction, as well as two portfolio managers that have pled guilty.
Allianz explained that the guilty plea will result in the disqualification of AGI US from advising mutual and pension funds, although the SEC is expected to issue waivers to ensure that the business activities of PIMCO and Allianz Life remain unaffected.
The company has also signed a memorandum of understanding (MoU) to transition AGI US’s investment management activities with roughly $120 billion in assets under management to Voya Investment Management (Voya IM).
The transferred activities do not include any part of the Structured Products Group, which has previously been dissolved, it added.
The terms of the MoU include a long-term strategic-distribution partnership whereby AllianzGI would distribute Voya IM’s investment strategies outside the US, with Allianz to recieve an up to 24% stake in Voya IM in return. The acquisition will require no external financing or use of Voya’s excess capital.
“We believe this to be a unique opportunity to acquire highly complementary investment management teams and assets, at scale, while preserving our strong excess capital position for additional value-creation actions, such as continued share repurchases and dividends along with further investments in our businesses,” said Rodney O. Martin, Jr., Chairman and CEO at Voya Financial, Inc.
“We have long identified increased scale and broader international distribution as attractive growth priorities, and this transaction would help us achieve those objectives while complementing our continued focus on private strategies and alternative investments, particularly given the strong global demand for these strategies that we are seeing from institutional investors and advisors,” added Christine Hurtsellers, CEO of Voya IM
In connection with the Structured Alpha settlements, AGI US will pay forfeiture of $174.3 million to the DOJ and $675 million as a penalty to the SEC that may be used in some part as compensation for investors.
Other monetary obligations addressed by the DOJ and the SEC have been or will be satisfied by the approximately $5 billion in compensation paid to Structured Alpha investors.
Allianz booked an additional provision for its Structured Alpha Funds of €1.9 billion in Q1 2022, which negatively impacted its quarterly income by some €1.6 billion, and reduced net income to just €600 million, compared with a group operating profit of €3.2 billion.
