Germany-based Allianz SE (ALIZY  ) has agreed to pay $6 billion for misleading investors regarding the riskiness of its Structured Alpha funds, and members of its U.S. branch, Allianz Global Investors US LLC, have pleaded guilty to criminal charges of securities fraud. Early during the pandemic, a group of Allianz investment funds worth $11 billion lost $7 billion between February and March.

The $6 billion settlement total between Allianz and the U.S. Department of Justice (DOJ) is one of the largest in history. For reference, the DOJ charged just $3.3 billion in corporate penalties for all of 2021.

The charges brought against the chief investment officer overseeing the Alpha funds, Gregoire Tournant, and two of Allianz's U.S. portfolio managers are also rare in the corporate world. Tournant has been indicted on charges of fraud, obstruction, and conspiracy, and the two managers have both pleaded guilty to charges of fraud and conspiracy.

The $6 billion total is comprised of a $2.33 billion criminal fine, $3.24 in restitution, and another $463 million to be forfeited, according to court documents. The U.S. Securities and Exchange Commission (SEC) also charged Allianz an additional $675 million in civil fines, the largest such penalty the SEC has given since Enron Corp and WorldCom Inc in the early 2000s.

Allianz's guilty plea also means that the company will be banned from advising U.S. investment funds for the next ten years. Due to the ban, Allianz has announced plans to shift assets worth $120 billion to Voya Financial Inc. (VOYA  ) In exchange, Allianz will gain a 24% stake in Voya's investment management unit.

The Alpha funds were first introduced by Allianz under Tournant's leadership in 2005. The funds received a total of $11 billion in investments from more than 100,000 investors, including public pensions, religious organizations, and other charitable foundations. In 2016, the company marketed the funds as "a tested & proven solution" and "consistently above target".

Allianz claimed that the Alpha funds were resistant to market crashes, making them a safer bet for investors. However, fund managers failed to take the proper steps to protect investors when the COVID-19 pandemic started and denied any problems when the funds started to sour.

When the global coronavirus pandemic began in 2020, stock markets plunged, and Allianz Alpha funds were soon put on review by investment consultant group Aon in a March 13 "flash report". By March 25, Allianz had liquidated two of the funds, but said that "the remaining funds are now well positioned".

Investigators report that more than 75 risk reports to investors were altered by fund managers, including one instance in which a fund's projected losses were changed from 42.15% to 4.15% by removing the number "2". Managers also lied to Allianz's in-house legal counsel about alleged report alterations.

Despite Allianz's claims, Aon issued another warning telling Alpha investors to "sell". First-quarter reports showed that one of the funds had lost a whopping 78%, while its benchmark decreased 22%. Allianz investors began to bail, and the lawsuits against the investment company came soon after.

In response, Allianz published a since-removed statement claiming that "losses were not the result of any failure in the portfolio's investment strategy or risk management processes".

In August of 2020, Allianz revealed that it was being investigated by the Securities and Exchange Commission, and a year later it revealed an investigation by the DOJ. Following the announcement of the DOJ probe, Allianz's share price dropped 7.8%. Within days, Allianz CEO Oliver Baete admitted that "not everything was perfect in the fund management."

By February of this year, Allianz announced that it would be setting aside nearly $4 billion to address the Alpha fund lawsuits and investigations, and many investors started accepting settlements. Meanwhile, the company's 2021 profits were reportedly the lowest Allianz has seen since 2013. Despite all of the company's issues, however, Baete still earned 9% more in 2021 compared to the year before.

Allianz shareholders seem to be satisfied with how things panned out, and stock prices were up 1.7% in Germany following the announcement of the $6 billion payouts.

Tournant has been released on a $20 million bond, and his arraignment is set for June 2.