Prosecutors and regulators revealed new details of how they say Tournant, Taylor, and Bond-Nelson duped investors, consultants, colleagues and auditors.
As star performers at Allianz Global Investors US, Tournant and Taylor each earned $51.3 million from 2016 to 2020 and Bond-Nelson made $12 million, according to the SEC.
The cooperation of Taylor and Bond-Nelson wasn’t assured. At one point Tournant met Taylor at a vacant construction site, where they discussed fund reports they manipulated and how to respond to SEC investigators, according to the SEC complaint.
Tournant also encouraged Bond-Nelson, 51, to give false testimony to the agency. Bond-Nelson lied repeatedly to SEC investigators during his testimony in May 2021 before taking a bathroom break and not returning. Soon, he “decided to cooperate and assist the SEC staff in understanding the Structured Alpha fraud,” according to the agency complaint.
The fund managers were not the only ones at fault. Allianz Global Investors US pleaded guilty to one count of securities fraud and agreed to pay about $6 billion to resolve the case. Prosecutors said the parent company played no role in the fraud and only learned of it after the pandemic hit.
Allianz spokesman John Wallace said Tournant and his two lieutenants engaged in “isolated but serious wrongdoing” that led the company to pay billions of dollars in settlements. “We are shocked by the actions of Greg Tournant and his former colleagues.”
Allianz on Tuesday announced plans to sell the bulk of the US piece of its Allianz Global Investors business to Voya Financial Inc. after the unit was banned for a decade from some fund services in the country. The company previously announced it had set aside 5.6 billion euros ($5.9 billion) to resolve the lawsuits and government probes tied to the funds.
Tournant’s group used equity-based options to market what he said was an all-weather strategy that would protect investors from losses in good times and bad. Those products would even turn a profit when markets went nowhere, according to product marketing materials.
In late 2015, Tournant allegedly grew frustrated with the cost of hedging, which was eating into returns. The fund “abandoned the promised hedging strategy and instead began to purchase cheaper hedges that were further out of the money, and therefore less protective in the event of a market crash,” according to the indictment. That change was not disclosed to investors, prosecutors allege.
While Tournant’s funds might have sounded too good to be true, Allianz Global Investors US assured clients that its risk-management system had “three lines of defense.” But prosecutors said it was barely functional.