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July 13, 2023

An uncommon federal sentencing of a corporation after a (common?) plea deal

I do not blog much about the criminal sentencing of corporations in large part because there are not that many criminal sentencings of corporations.  But this press piece, headlined "Allianz US Unit Ordered to Pay $6 Billion in Securities Fraud Case," reports on a notable one from earlier this week:

A New York judge ordered a unit of Allianz SE to pay about $6 billion as punishment for misrepresenting the investment risk posed by a group of hedge funds, imposing a sentence agreed more than a year ago as part of a plea deal.

Allianz Global Investors US had accepted the payout last year when it pleaded guilty to a single criminal charge of securities fraud as part of a deal with federal prosecutors. US District Judge Colleen McMahon announced the sentence Wednesday in Manhattan.

The plea deal ended an embarrassing chapter for the German insurance giant, which agreed to sell the bulk of Allianz Global Investors US to Voya Financial Inc. after the unit was banned for a decade from some fund services in the country.  Allianz Chief Executive Officer Oliver Baete, who had made settling the conflict a priority, in an interview last month called the discussions “among the most consequential negotiations” of his life.

AGI in the US planned to dissolve shortly after the sentencing, according to a July 5 letter to the judge by both sides. The unit was automatically disqualified from acting as an investment adviser or principal underwriter for any mutual fund or closed-end fund for 10 years. In addition to the payments, AGI was sentenced to five years’ probation, which will be discontinued once it no longer exists, McMahon said.

The Allianz unit’s guilty plea was unusual for a major financial firm. Companies more often resolve government investigations by paying money and pledging corrective actions without admitting any wrongdoing.  The judge said AGI is the first corporation she has sentenced in her 25 years on the bench.

Gregoire Tournant, the former chief investment officer and co-lead portfolio manager of the funds, was charged with fraud and conspiracy in connection with the funds’ meltdown. He has pleaded not guilty and is fighting the charges. Two other executives with the funds, Stephen Bond-Nelson and Trevor Taylor, pleaded guilty to conspiracy and fraud last year and are cooperating with prosecutors....

AGI US’s Structured Alpha funds were marketed as providing protection against a market crash. Instead, they ended up losing $7 billion during the tumultuous early days of the pandemic in 2020, spurring multiple lawsuits from pension plan investors.

Under the sentence, AGI was ordered to pay fines of $2.3 billion, $3.2 billion in restitution and to forfeit $463 million. It will receive credit for $1.9 billion already made over to victims of the fraud and for a $675 million civil penalty paid to the US Securities and Exchange Commission.

July 13, 2023 at 02:13 PM | Permalink


My uncle is a retired corporate general counsel and secretary of a major merchant fleet owner - operator, which had contracts with the Navy sealift command. His empoyer, the corporation, pleaded guilty to unlawfully discharging poluted liquids from its vessels at sea, in violation of Federal environmental laws. The company paid fines and agreed to change its practices, to conform to legal requirements. As general counsel and secretary, my uncle was the person who appeared in Federal Court to actually make the guilty plea on behalf of the corporation. After the case was reported in the Houston Chronile, my uncles social friends told him how sorry they were to hear of HIS criminal convictions, and wanted to know if he would still be able to practice law! He had to explain that it. Was the corporation's convictions, not his own.

Posted by: Jim Gormley | Jul 13, 2023 6:44:54 PM

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