By Tom Sims, Alexander Hübner and John O’Donnell

FRANKFURT, (Reuters) – The Allianz U.S. Funds Unit fraud (ETR) was the story of a star portfolio manager who relied on Allianz’s reputation to attract investors. He also benefited from a lack in oversight and received $60 million of pay.

Gregoire Tournant (a French citizen and a US citizen) was arrested Tuesday on charges of securities fraud, fraud in investment advisor fraud, and obstruction of justice. The scheme ran from 2014 through 2020.

This was the culmination of a 2-year-long saga that haunted and embarrased Allianz. It began when Tournant’s $11 billion of funds collapsed in markets shaken by the coronavirus outbreak in 2020.

U.S. attorneys on Tuesday claimed Tournant faked documents and risk reports, altered spreadsheets, as well as lying about the investment strategy.

U.S. Attorney Damian Williams claimed that Tournant (55) was the primary architect of “an egregious and long-running extensive fraud.”

Tournant was defended by his lawyers, who said that there were no merit to the allegations and that Tournant would be defending himself. Other fund managers plead guilty and agreed to cooperate.

Tournant’s employer and Tournant saw early 2020 as a rapid turn in fortunes.

Tournant just finished a year of $13 million. His marketing materials stated in February 2020 that his funds were “as prepared as ever” in case there was a serious market disruption.

In March of 2003, Tournant’s assets collapsed. Investor lawsuits and an investigation by U.S. Securities and Exchange Commission followed.

Allianz paid more than $6B to end the investigation on Tuesday. U.S. assets management unit of Allianz pleaded guilty for criminal securities fraud.

“THE COP WAS ALONE”

Tournant co-founded the Structured Alpha fund in 2005 with Allianz Global Investors. These funds were targeted at conservative U.S. pensions, including those for workers in Alaska and teachers in Arkansas as well as subway workers in New York.

To generate returns, the fund used complicated options strategies.

In a May 2016 video, Tournant uses a French accent to indicate that the best environment for funds is a bearish market with high levels volatility.

“Our strategies do not aim to be race cars that can speed up their way to great returns. He stated in separate marketing materials that they are four-wheel drive vehicles built to conquer rough terrain.

According to the indictment, Tournant “deceived investors and funds by understating risks.”

Tournant (and another fund manager) took daily risk reporting from a sister company, and changed 75 of the reports before they were distributed to investors. This resulted in a reduction of stress-related losses.

Tournant spoke highly of Allianz’s oversight for investors in 2014. He stated to clients that Allianz had acted “master cop” and “one among the largest, most conservative insurance corporations in the world watching every step that I take.”

Prosecutors wrote, however that Tournant was not verified by Allianz.

Williams, the prosecutor said that “the cop had fallen asleep.”

Michael Peters from the German Consumer Advocate Group Finanzwende said this activity is possible from an aggressive hedge fund, but not from an Allianz affiliate.

“Trust was lost,” he stated, and said “Allianz must really take an honest look at this matter.”

According to the prosecution, there was no evidence that Tournant or anyone else knew about the misconduct.

Seth Levine, Tournant’s attorney, and Daniel Alonso, Tournant’s lawyer said that the losses suffered by investors were regrettable but not a result of a crime.

“Greg Tournant is unfairly targeted [in a]”The government attempted to criminalize the effect of unprecedented COVID-induced market disruptions.” Levine and Alonso made joint statements.

Tournant was terminated “for violating company policies intended to enforce compliance with industry regulations” according to a regulatory filing filed in December.

Tournant appeared briefly in Denver Federal Court on Tuesday. He was then released having agreed to post $20 million bail. New York’s June 2 was the date of his arraignment.