PLANADVISER -May/June 2022 - 4

Legislative and Judicial Actions
compliance news //
Fraud Charges Trigger
The Sale of Allianz Global
Investors U.S.
Allianz Global Investors U.S., the
U.S. asset management arm of
German insurer Allianz SE, has
settled charges from the Securities
and Exchange Commission
that the firm and three
former senior portfolio
managers conducted what
the SEC called " a massive
fraudulent scheme " that
caused " catastrophic losses "
for their strategy's funds and
the funds' investors.
The
scheme
involved
a
trading strategy called Structured
Alpha, which used complex
options trading to earn returns for
investors. However, the alleged perpetrators
of the scam did not reveal the
potential immense downside risks
of this trading strategy to investors.
In March 2020, when the COVID-19
pandemic caused markets to crash, the
fraud came to light. The approximately
114 institutional investors that had
purchased Structured Alpha Funds,
and paid over $550 million in fees, lost
more than $5 billion, according to the
SEC press release.
As a consequence of pleading guilty,
AGI U.S. is automatically and immediately
disqualified from providing advisory
services to U.S.-registered investment
funds for the next 10 years and
will exit the business. As a result of the
ban, Allianz SE plans to sell most of
the U.S. piece of Allianz Global Investors
to Voya Financial Inc.
The institutional investors that
sued or filed complaints against Allianz
Global include Arkansas Teacher
Retirement System, Blue Cross Blue
Shield, Chicago Laborers Pension and
Welfare Funds, Employees' Retirement
System of Milwaukee, J. Paul Getty
Trust, Metropolitan Transit Authority
Pension Funds, Raytheon and San
Diego City Employees' Retirement.
The SEC's complaint, filed in the
U.S. District Court in Manhattan,
alleges that Structured Alpha's lead
portfolio manager
orchestrated
the
multi-year scheme to mislead investors
who purchased roughly $11 billion
in Structured Alpha Funds. The SEC's
complaint
further alleges that, with
assistance from the co-lead portfolio
manager and the portfolio manager, the
lead manager manipulated numerous
financial reports and other information
provided to investors to conceal the
magnitude of Structured Alpha's true
risk and the funds' actual performance.
Allianz had marketed Strategic
Alpha
Funds
as
safe
investments
that would be protected from risk in
multiple different scenarios.
Another Extension for
has
IRS
'Physical Presence' Relief
The
SEC Will Propose ESG and
'Names Rule' Regulations
The Securities and Exchange Commission
voted to propose two regulations.
The first is referred to as " ESG [Environmental,
Social and Governance]
Disclosures for Investment Advisers
and Investment Companies. " According
to the SEC fact sheet, the proposed rule
and form amendments are designed to
provide consistent standards for ESG
disclosures and would apply to registered
investment companies, business
development
companies,
registered
investment advisers and certain unregistered
advisers.
The SEC would require additional
extended, through
December 31, temporary relief from
the physical presence requirement
for participant elections that must be
witnessed by a plan representative, or
by a notary public in states that permit
electronic signatures.
According to Notice 2022-27,
the extension is to respond to the
continuing COVID-19 pandemic and
specific disclosure requirements
regarding ESG strategies in fund
prospectuses, annual reports and
adviser brochures; by implementing a
" layered, tabular disclosure approach "
for ESG funds to allow investors to
compare them at a glance; and by
generally requiring certain environmentally
focused funds to disclose the
greenhouse gas emissions associated
with their portfolio investments.
to permit consideration of stakeholder
comments.
The initial temporary relief,
granted in Notice 2020-42, was also
due to the pandemic and to related
social distancing; it extended
through December 31, 2020,
assuming certain conditions
were satisfied. Last June, the
IRS issued Notice 2021-40,
extending the relief through
this June 30.
The Treasury Department
and the IRS are currently
reviewing the stakeholder
comments to determine
whether to retain the physical
presence requirement without
modification or whether to propose
to modify it. If the two agencies
decide to propose modification, they
will do so only through the regulatory
process, which will include the opportunity
for further comment.
4 | planadviser.com May-June 2022 Art by Simone Virgini
http://www.planadviser.com
PLANADVISER -May/June 2022

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