The SEC just charged a US subsidiary of investment giant Allianz in a multibillion dollar fraud scheme that targeted pensions and other investors

• A subsidiary of Allianz agreed to pay $6 billion and pleaded guilty to charges of fraud and misleading investors.
• The Justice Department brought charges against Allianz Global Investors US for the March 2020 scheme.

Allianz Global Investors US, an arm of parent company Allianz, agreed to pay $6 billion and pleaded guilty to charges of fraud and misleading investors, federal authorities announced Tuesday.

As part of an agreement with federal prosecutors in New York, Allianz Global Investors U.S. pleaded guilty to one count of securities fraud and admitted it lacked the necessary oversight and communication channels for several private investment ventures.

The Justice Department also charged three former portfolio manager of Allianz Global Investors US. Two of the three have pleaded guilty.

The Securities and Exchange Commission also charged Allianz Global Investors US and the three men, accusing them of civil securities fraud.

Allianz said the misconduct the Justice Department outlined was by individuals no longer at the company, adding that the investigation didn't point to other units of Allianz.

A co-counsel for Greg Tournant, who is one of the fund managers charged, said the government has unfairly targeted him and that its claims have no merit.

"The losses resulting from these market events were suffered by sophisticated institutional investors – including Greg himself who had a considerable investment in the fund. While the losses are regrettable, they are not the result of any crime," according to a statement, which added that Tournant will defend himself in court.

The goverment alledged that the plot lasted from 2014 to 2020 and involved Allianz Global Investors' Structured Alpha funds, which effectively sold insurance to investors hedging against a potential market selloff. But when the COVID-19 pandemic sent markets into freefall in early 2020, the Structured Alpha funds lost more than $7 billion in March 2020.

Federal prosecutors alleged that the fund managers misled investors about the risks they were taking, how returns were produced, and their hedging strategies. The defrauded investors included a pension plan for Arkansas teachers and New York City subway workers.