Gregoire Tournant, a former fund manager at Allianz (ALVG.DE), was sentenced to 18 months of home confinement and three years of probation on Friday, avoiding prison time for his involvement in the collapse of private investment funds that resulted in an estimated $7 billion in losses for investors. Tournant, 57, of Basalt, Colorado, had pleaded guilty in June to two counts of investment adviser fraud after he misled investors in Allianz’s now-defunct Structured Alpha funds.
Fraudulent Investment Practices Sparked by the Pandemic
Tournant’s conviction stemmed from the collapse of the Structured Alpha funds in March 2020, triggered by the COVID-19 pandemic. The funds, which Tournant created and managed, had bet heavily on stock options with the goal of hedging against a market selloff. However, prosecutors said Tournant altered performance data and deviated from the promised hedging strategy, ultimately misleading investors about the risks involved.
At the height of their operations, the funds managed over $11 billion in assets. However, as global markets crashed during the early months of the pandemic, the funds lost approximately $7 billion. Prosecutors also accused Tournant of obstructing a Securities and Exchange Commission (SEC) investigation by instructing a colleague to lie during the probe.
Health Concerns and Remorse Cited in Sentencing
Tournant’s defense attorneys requested a lenient sentence, pointing to his health issues and his expressed remorse for the actions that led to the devastating losses. They argued that the case was less severe compared to other typical investment adviser fraud cases. In response, Chief Judge Laura Taylor Swain of the federal court in Manhattan imposed a sentence of home confinement and probation, recognizing that prison time might not have been appropriate in this case.
“We are deeply appreciative to the Court for imposing this just sentence and recognizing that incarceration was not appropriate in this case,” said Tournant’s lawyers, Seth Levine and Daniel Alonso, in a statement.
Widespread Impact on Investors
Despite the lenient sentence, prosecutors had pushed for a much harsher punishment, recommending at least seven years of prison time. They emphasized that over 100 investors suffered significant financial losses due to Tournant’s fraudulent actions. The case had a wider impact on the financial industry, with Allianz paying over $6 billion in settlements to resolve various government investigations related to the collapse of the funds. In addition, two other former fund managers from Allianz pleaded guilty in connection with the case.
Ongoing Legal Fallout
Tournant’s role in the scandal contributed to a larger ongoing legal fallout for Allianz. In 2021, the German insurer’s U.S. asset management unit pleaded guilty to securities fraud, marking a significant moment in the company’s efforts to resolve the aftermath of the fraud.
Tournant, who had earned more than $60 million during his time managing the Structured Alpha funds, remains under close scrutiny as the legal consequences continue to unfold for those involved in the collapse.
