By Tom Sims, Alexander Hübner and John O'Donnell

FRANKFURT (Reuters) -The star portfolio manager at the centre of a fraud at the U.S. funds unit of Allianz SE relied on the German insurer's good name to lure investors and thrived from a lack of oversight as he pocketed $60 million in pay, U.S. authorities said.

Gregoire "Greg" Tournant, a citizen of France and the United States, was indicted on Tuesday for securities fraud, investment adviser fraud, wire fraud and obstruction of justice in a scheme that ran from 2014 to 2020.

It was a major development in a two-year saga that has haunted and embarrassed Allianz, one of the globe's biggest financial firms, and began after the $11 billion in funds managed by Tournant collapsed as markets roiled with the outbreak of the coronavirus in early 2020.

U.S. prosecutors on Tuesday said Tournant faked documents, fabricated risk reports, altered spreadsheets, and lied about the investment strategy.

Tournant, 55, was the "primary architect" of "an egregious, long-running extensive fraud," U.S. Attorney Damian Williams said.

Tournant's lawyers said the charges were without merit and that he would defend himself. Two other fund managers pleaded guilty and were cooperating.

For Tournant and his employer, early 2020 marked a swift turn of fortune.

Tournant had just closed out a year in which he earned $13 million, and his funds' marketing material said in February 2020 that "today we are as prepared as ever in the event of a severe market dislocation."

It was just weeks later, in March, that Tournant's funds collapsed, unleashing investor lawsuits and investigations by the U.S. Securities and Exchange Commission.

The probe culminated on Tuesday with Allianz agreeing to pay more than $6 billion and its U.S. asset management unit pleading guilty to criminal securities fraud.

'THE COP WAS ASLEEP'

Tournant, with Allianz Global Investors since 2002, founded the so-called Structured Alpha funds in 2005. They were marketed in particular to typically conservative U.S. pension funds, from those for labourers in Alaska to teachers in Arkansas and subway workers in New York.

The funds used complex options strategies to generate returns.

Tournant, in a May 2016 video reviewed by Reuters, speaks in a slight French accent to say the funds' best environment is a bear market with high levels of volatility.

"Our strategies are not race cars looking to speed their way to high returns. They're four-wheel drive vehicles designed to tackle rough terrain," he said in separate marketing material.

Tournant "deceived the funds and their investors by understating the risk," the indictment reads.

In one example, Tournant and another fund manager took daily risk reports provided by a sister company and altered 75 of them before they went to investors. The effect was to reduce projected losses in stress scenarios.

Tournant touted Allianz's oversight to investors, telling clients in 2014 that Allianz acted as a "master cop" with "one of the largest and most conservative insurance companies in the world monitoring every position that I take."

But prosecutors wrote that no one at Allianz verifying Tournant's work.

"The cop was asleep," prosecutor Williams said.

Michael Peters, an expert with German consumer advocacy group Finanzwende, said such activity could be expected from an aggressive hedge fund but not from an Allianz subsidiary.

"Trust was gambled away," he said, adding, "Allianz really needs to take a hard look at the matter."

Prosecutors said they found no evidence that anyone outside Tournant's group knew of the misconduct.

Tournant's attorneys Seth Levine and Daniel Alonso said the investor losses were "regrettable" but did not result from a crime.

"Greg Tournant has been unfairly targeted [in a] meritless and ill-considered attempt by the government to criminalize the impact of the unprecedented, COVID-induced market dislocation," Levine and Alonso said in a joint statement.

A December regulatory filing shows that Tournant was let go "for violation of firm policies designed to ensure compliance with industry regulations and standards."

On Tuesday, Tournant made a brief appearance in Denver federal court and was released after agreeing to post a $20 million bond. His arraignment was scheduled for June 2 in New York.

(Reporting by Tom Sims, Alexander Huebner and John O'Donnell in Frankfurt Additional reporting by Jonathan Stempel and Luc Cohen in New YorkEditing by Matthew Lewis)