Category Archives: Fiduciary Duty

Blue Cross Blue Shield sues AllianzGI over investment strategies

Posted on by • Posted in District Court, False, Fiduciary Duty, Investment, Investment Banking, Investments, Lawsuit, Mislead, Misleading, Risk, Risk Management • Leave a comment

https://www.pionline.com/courts/blue-cross-blue-shield-sues-allianzgi-over-investment-strategies

Blue Cross Blue Shield’s national employee benefits committee filed a lawsuit against Allianz Global Investors and its investment consultant Aon Investments USA, charging both with breaches of fiduciary responsibilities and breach of contract regarding more than $2 billion in losses in the insurer’s defined benefit plan trust.

The lawsuit, filed Wednesday in U.S. District Court in New York, alleges that AllianzGI took “reckless actions” in the management of three funds the manager had said offered downside protection against market declines and volatility, according to the court filing.

As of Jan. 31, the National Retirement Trust of the Blue Cross and Blue Shield Association had a total of $2.9 billion invested in the AllianzGI Structured Alpha Multi-Beta Series LLC I, AllianzGI Structured Alpha Emerging Markets Equity 350 LLC, and the AllianzGI Structured Alpha 1000 LLC, according to the filing.

The numerical values in the strategy names correspond to the amount of alpha in basis points above a corresponding index the strategy is expected to achieve.

After the funds experienced heavy losses in February and March, the investments were liquidated and redeemed, and the committee received about $540 million, according to the filing.

As of Dec. 31, 2018, the Blue Cross and Blue Shield Association National Retirement Trust had $4.6 billion in assets, according to its most recent Form 5500 filing.

The lawsuit, which includes claims breach of fiduciary duty and breach of contract against both AllianzGI and Aon, alleges that AllianzGI “caused the (benefits) committee to believe that structured alpha’s risk profile was consistent with Allianz’s stated investment strategy rather than the actual risk profile, either by making false or misleading representations about structured alpha or failing to disclose information necessary to correct prior representations that were inconsistent with how Allianz was actually managing the strategy.”

The suit alleges Aon breached its obligations by “failing to monitor and inform the committee of breakdowns in Allianz’s risk management protocols, learning only after the catastrophic events of March 2020 that Allianz had inadequate risk management in place.”

AllianzGI’s structured alpha strategies have historically been designed to be both long and short volatility, according to a September 2016 presentation: Taking range-bound spread positions, to sell options that were most likely to expire worthless (short volatility); hedged positions designed to protect against market crashes (long volatility); and directional spread positions designed to generate returns when equity indexes rise or fall more than usual during multiweek periods (long/short volatility).

The lawsuit alleges that “when equity markets declined, volatility spiked and the funds’ option positions were exposed to a heightened risk of loss in February and March 2020, those promised protections were absent.”

The lawsuit seeks relief including restoration of all losses, actual damages and accounting and disgorgement of fees and profits.

John Wallace, AllianzGI spokesman, said in an email: “While the losses sustained by the Structured Alpha portfolio during the market downturn in late February and March were disappointing, AllianzGI believes the allegations made by Blue Cross Blue Shield are legally and factually flawed. We will defend ourselves vigorously against these claims. Blue Cross Blue Shield was advised by a sophisticated investment consultant to evaluate the Structured Alpha strategy. These funds sought to deliver substantial returns of as much as 10% above, net of fees, the returns of the fund’s benchmark, an index like the S&P 500. As was fully disclosed to Blue Cross Blue Shield, the Structured Alpha strategy involved risks commensurate with those higher returns. Blue Cross Blue Shield and their consultant determined that the Structured Alpha Portfolio fit with their overall investment goals and risk tolerances.”

The $15.3 billion Arkansas Teacher Retirement System, Little Rock, filed its own lawsuit against Allianz Global Investors and subsidiaries in July, regarding its own losses in structured alpha strategies.

Robert Elfinger, Aon spokesman, said the company does not comment on pending litigation.

Sean W. Gallagher, Adam L. Hoeflich, Nicolas L. Martinez, Abby M. Mollen and Mark S. Ouweleen, partners at Bartlit Beck, attorney for the plaintiffs, could also not be immediately reached for comment.

 

 

 

 

Michigan ACO executive sentenced to prison for stealing Medicare bonus

Posted on by • Posted in Accountable Care Organization (ACO), Dept of Justice (DOJ), Fiduciary Duty, Fraud and Abuse, Leadership, Misapropriation of Funds, Prison, Prison Sentence • Leave a comment

https://www.beckershospitalreview.com/legal-regulatory-issues/michigan-aco-executive-sentenced-to-prison-for-stealing-medicare-bonus.html?utm_medium=email

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The former CEO of Southeast Michigan Accountable Care in Dearborn was sentenced Feb. 19 to three years in prison after pleading guilty to wire fraud in connection with his theft of more than $3.4 million from the ACO, according to the Department of Justice.

Anthony Vespa was serving as executive director of SEMAC in the summer of 2017, when an audit of the ACO’s checking account revealed funds had been misappropriated. SEMAC fired Mr. Vespa in August 2017. The next month, he opened a new account for SEMAC without the authority of the ACO.

The new account information was shared with Medicare, and Medicare deposited the ACO’s shared savings bonus for 2016 into the account. After the $3.9 million bonus was deposited, Mr. Vespa wrote checks and wire transferred money out of the account for his personal use.

“The defendant had a fiduciary responsibility to safeguard the funds of the victims’ who trusted him to that task,” FBI Special Agent in Charge Steven D’Antuono said in a release. “Even after his scheme to defraud was uncovered, the defendant continued his deceitful scheme to defraud which makes it even more reprehensible.”

In addition to the prison term, Mr. Vespa was ordered to pay restitution and forfeit the full $3.4 million he stole from SEMAC. After his release from prison, Mr. Vespa will serve a two-year term of supervised release.

 

Failure of Fiduciary Duty?

Posted on by • Posted in 2020 Election Issues, Board, Fiduciary, Fiduciary Duty, Health Policy, Private Equity, Venture Capital • Leave a comment

https://www.axios.com/newsletters/axios-vitals-0460cccc-499e-4609-80e6-745311cef1ad.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

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Sen. Bernie Sanders still may eke out a win in Iowa, and is the consensus front-runner in New Hampshire.

  • But most venture capitalists investing in America’s health care industry — the primary target of Bernie’s ire — have shoved their heads so deep in the sand that they’ve found water, Axios’ Dan Primack writes.

Why it matters: At some point, it could become a failure of fiduciary duty.

Health care accounts for over 20% of all U.S. venture activity.

  • A majority of that is in biotech/pharma, which last year saw 866 deals raise around $16.6 billion.
  • Investors view many of those deals as binary: Either the drug doesn’t work, resulting in a total write-off, or it does work and the financial sky’s the limit. Strike out or grand slam.
  • Sanders pledges to limit the upside, either by limiting drug prices under the current system or (if he gets Medicare for All) by establishing a single, centralized buyer.

Few health care VCs Dan spoke with are working on a Plan B in the event of their risk/reward models being made obsolete. Three main reasons:

  1. They don’t believe Sanders will win.
  2. Even if he does win, they don’t believe Sanders will get Medicare for All.
  3. If Sanders wins and implements his full plan, then it’s such a revolutionary shift that there’s not much health care VCs can do to counter it.

The bottom line: For now, health care venture’s strategy is see no Bernie, hear no Bernie. We’ll see how long that’s viable.