Allianz settled with US authorities in May 2022 over allegations that its US unit defrauded investors in the now-defunct Structured Alpha Funds. The subsidiary, US Allianz Global Investors (AGI), pleaded guilty to criminal securities fraud and agreed to pay the fines and restitution to investors.
US district court judge Colleen McMahon in Manhattan imposed what she called the “astronomical” financial sentence on Wednesday.
“This is a sad and sorry state of affairs,” she said of the allegations.
Allianz paid around US$5 billion to investors, and more than US$840 million to US government authorities to settle the allegations, the company said at the time.
The penalties in the case were initially announced as totaling US$6 billion, but US prosecutors agreed to accept partial payment of a forfeiture order, they said in court papers.
Once with more than US$11 billion of assets under management, the Structured Alpha funds lost more than US$7 billion as Covid-19 roiled markets in February and March 2020.
Prosecutors said AGI misled pension funds by understating the Structured Alpha funds’ risks, and by having “significant gaps” in its oversight.
The sentencing had been postponed since last year to give Allianz’s Pacific Investment Management Co (Pimco) time to negotiate its ability to keep handling US$170 billion in US retirement funds despite AGI’s conviction.
Companies that break criminal laws or commit fraud are generally banned from activities such as conducting private offerings or managing pension plans under US law. The rule also applies to the company’s affiliates.
The US Department of Labor’s Employee Benefits Security Administration granted Pimco a five-year exemption from a 10-year ban on July 5. The asset manager can seek to extend the exemption.
AGI, which was subject to a 10 year ban, is expected to wind down its business, its attorney said in court.
In the wake of the criminal case, Allianz moved about US$120 billion of investor assets to Voya Financial (VOYA.N) in exchange for a 24% stake in Voya’s asset management business.