NYC-based investment adviser to plead guilty in $5B fraud case, authorities say

Prosecutors announced Tuesday that New York City-based investment adviser Allianz Global Investors US LLC agreed to plead guilty in a fraud case after bus drivers, subway conductors and charitable groups lost $5 billion from private investment funds that were once worth $11 billion.

U.S. Attorney Damian Williams said his office brought criminal charges against the investment company partly because it did not disclose an "egregious, long-running and expensive fraud" prior to the Securities and Exchange Commission finding it.

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"Make sure you call us before we call you," Williams said at a news conference, adding that he will remain "relentless in rooting out corruption in our financial markets."

Allianz Global Investors US LLC agreed to plead guilty Tuesday as part of a deal with prosecutors for its involvement in the fraud. The company will pay $3.2 billion in restitution, a $2.3 billion fine and will have to forfeit $463 million. The fraud took place from 2014 to 2020.

Williams also said conspiracy, securities fraud and obstruction of justice charges were filed against Gregoire Tournant, the former chief investment officer for a series of funds at the company that was once worth $11 billion. Two other men linked to the fraud have pleaded guilty and are cooperating, the prosecutor said.

Williams accused Tournant and his co-conspirators of lying to investors and secretly exposing them to significant risk in order to profit illegally.

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"Pension 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," he said.

He said the company was "asleep on the beat" and that "these investors got soaked and lost billions" when the market crashed from the COVID-19 pandemic.

But SEC Director of Enforcement Gurbir S. Grewal said at the news conference that the victims have been "made whole" or will be soon.

He explained that the SEC penalties against the investment company, including $315.2 million in disgorgement, $34 million in prejudgment interest and a $675 million civil penalty, were the most substantial penalties from an SEC case brought by the agency in 20 years.

Grewal also said AGI US raked in more than $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."

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Tournant turned himself in on Tuesday in Denver, Colorado, and was released on $20 million bond.

His attorneys said in a statement that the prosecution was a "meritless and ill-considered attempt by the government to criminalize the impact of the unprecedented, COVID-induced market dislocation of March 2020."

They claimed Tournant was unfairly targeted, particularly because he was on extended medical leave during that time, and that the funds had flourished under his leadership for 14 years.

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"The losses resulting from these market events were suffered by sophisticated institutional investors – including Greg himself who had a considerable investment in the fund,"  the statement said. "While the losses are regrettable, they are not the result of any crime."