Allianz unit pleads guilty to fraud, loses US licence, will pay $6bn
The American subsidiary of global insurance giant Allianz will “plead guilty” to securities fraud and criminal misconduct, and as a result lose its US licence. Its parent company will pay more than $6 billion penalty in connection with the blowout of its so-called Structured Alpha funds early in the pandemic.
The insurer’s US asset management unit, Allianz Global Investors US (AGI US), has entered into settlements with the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) in connection with the Structured Alpha matter.
AGI US will plead guilty to one count of criminal securities fraud after the SEC, which l aunched a probe into its asset management activity in 2020, found that AGI US “violated relevant US securities laws”.
“ Allianz Global Investors admitted to defrauding investors over multiple years, concealing losses and downside risks of a complex strategy, and failing to implement key risk controls,” said SEC chair Gary Gensler.
The guilty plea will result in the disqualification of AGI US from advising US registered mutual funds and certain type of pension funds after expiry of a temporary relief period. However, Allianz expects the SEC to issue waivers to ensure that AGI US’ resolution with the DOJ does not impact PIMCO and Allianz Life’s business activities.
In connection with the 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 that suffered losses at the time. Plus, approximately $5 billion will be paid in compensation to Structured Alpha investors, which has been provisioned by the company’s in 2021 and Q1 2022.
Allianz maintains that the criminal misconduct at AGI US was limited to only “a handful of individuals” in the Structured Products Group who are no longer employed by the company.
The insurer also clarified that the DOJ’s investigation did not find any knowledge of, or participation in, the misconduct at the wider company or any other entity of the Allianz Group.
Allianz SE has signed a Memorandum of Understanding to enter into a long-term strategic partnership including a transition of AGI US' investment management activities with currently $120 billion in assets under management in scope to a new partner in the US. The transferred activities do not include any part of the Structured Products Group, which has previously been dissolved. As consideration for the transfer, Allianz Global Investors would receive a stake in the enlarged entity and long-term, global, cross-distribution agreements.
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