Statement of Commissioner Kristin N. Johnson regarding the CFTC’s Notice and Order Imposing a Statutory Disqualification against Allianz Global Investors US LLC
March 21, 2023
The Commodity Futures Trading Commission (CFTC) today issued a Notice of Intent to Revoke the Registrations of Allianz Global Investors US LLC (AGI US) and simultaneously issued an Opinion and Order accepting AGI US’s offer of settlement. In the settlement, the Commission revokes AGI US’s registration as a commodity trading advisor and a commodity pool operator.
AGI US is a global investment advisory firm providing a variety of investment strategies for institutional and retail investors. For several years, AGI US offered clients a complex options trading strategy that used the purchase and sale of options on the S&P 500 Index and other equity indices to generate additional profits (Structured Alpha Funds). AGI US, through its portfolio managers, for several years made misrepresentations and omissions to investors to conceal the downside risk, including the manipulation of reports to conceal the fraud. The Structured Alpha Funds performed well and AGI US concealed its misrepresentations until March 2020, when COVID-related market volatility resulted in billions of dollars in losses and revealed the misconduct at issue in the Opinion and Order.
In May 2022, the U.S. Securities and Exchange Commission (SEC) brought an action against AGI US for violations of the anti-fraud provisions under the federal securities laws.[1] AGI US admitted to violations of federal securities law and agreed to a cease-and-desist order, a censure, $315.2 million in disgorgement, and a $657 million civil monetary penalty.[2] As a result of the guilty plea, Section 9(a) of the Investment Company Act automatically disqualified AGI US from providing advisory services to US registered investment funds for a period of 10 years.[3]
Under Section 8a(2)(E)(i) of the Commodity Exchange Act (CEA), the Commission may order a statutory disqualification if it is determined by a court, the Commission, or another agency that a firm has engaged in conduct that is especially grave and clearly relates to a firm’s fitness for registration with the Commission.[4] AGI US’s misrepresentations and omissions defrauded its investors and undermined market integrity. This egregious behavior resulted in AGI US’s disqualification from the equities markets and, therefore, the Commission has taken a necessary next step to protect the derivatives markets and market participants by ordering a statutory disqualification under the Act. In addition, AGI US agreed to certain undertakings related to transition of an existing investment fund to another firm, as well as certain registration-related restrictions.[5]
Fraud perpetuated in this manner is particularly pernicious because of the impact that such conduct may have on market integrity and public trust in financial markets. In periods of market stress, we must be vigilant in identifying misconduct and imposing appropriate remedial punishments.
I recognize the efforts of the Division of Enforcement and its staff, including Paul Flucke, Rachel Hayes, Christopher Reed, and Charles Marvine. The continuing efforts by the staff to protect our markets are deeply important to the integrity of our markets.
[1] Securities and Exchange Commission v. Gregoire P. Tournant et. al, 1:22-cv-4016 (S.D.N.Y., filed May 12, 2022). The SEC Order found AGI US violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b); Rule 10b-5, 17 C.F.R. § 240.10b-5 (2022); Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-6(1), (2), (4); and Rules 206(4)-7 and 206(4)-8, 17 C.F.R. §§ 275.206(4)-7, 275.206(4)-8 (2022).
[2] Id.
[3] 15 U.S.C. § 80a-9(a).
[4] 7 U.S.C. § 12a(2)(E)(i). In relevant part Section 8a(2)(E)(i) states “upon notice, but without a hearing and pursuant to such rules, regulations, or orders as the Commission may adopt, to refuse to register, to register conditionally, or to suspend or place restrictions upon the registration of, any person and with such a hearing as may be appropriate to revoke the registration of any person… (E) if such person, within ten years preceding the filing of the application or at any time thereafter, has been found in a proceeding brought by the Commission or any Federal or State agency or other governmental body, or by agreement of settlement to which the Commission or any Federal or State agency or other governmental body is a party, (i) to have violated any provision of this chapter, … the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.], … the Investment Advisers Act of 1940 [15 U.S.C. 80b–1 et seq.] or any similar statute of a State or foreign jurisdiction, or any rule, regulation, or order under any such statutes, … where such violation involves embezzlement, theft, extortion, fraud, fraudulent conversion, misappropriation of funds, securities or property, forgery, counterfeiting, false pretenses, bribery, or gambling….”
[5] See Order, section V.4.
-CFTC-