Monday, April 13, 2009

sued by the state of Oregon for costing college-savings plan participants at least $36.2 million because of “plainly inappropriate” bond investments.

TO BE NOTED: From Bloomberg:

"OppenheimerFunds Sued by Oregon on College Fund Loss (Update2)

By Charles Stein

April 13 (Bloomberg) -- OppenheimerFunds Inc. was sued by the state of Oregon for costing college-savings plan participants at least $36.2 million because of “plainly inappropriate” bond investments.

OppenheimerFunds misrepresented the risk of its Oppenheimer Core Bond Fund, leading to losses in what were intended to be conservative bond investments, Oregon Treasurer Ben Westlund and Attorney General John Kroger said in a statement today. OppenheimerFunds, based in New York, is the investment manager of two college-saving programs sponsored by the state.

The suit, filed in Oregon state court, alleges violations of securities law, breach of contract, breach of fiduciary duty, negligence and negligent misrepresentation. It claims OppenheimerFunds changed the investment focus of the Core Bond Fund in 2007, increasing its risk without telling the state or investors. The $1.1 billion fund lost 41 percent over the past year, according to Bloomberg data.

“We are taking action on behalf of Oregon families whose college accounts were battered,” Westlund said in the statement. “Families were doing the right thing and saving for college, but unknown to them or Oregon, their money was invested in ways that were plainly inappropriate.”

A telephone call to Jeaneen Pisarra, a spokeswoman for OppenheimerFunds, wasn’t immediately returned. OppenheimerFunds is a unit of Massachusetts Mutual Life Insurance Co.

Joint Investigation

Oregon is one of five states that last month began a joint investigation to see whether OppenheimerFunds violated its fiduciary duty to college-savings plan investors. The bond funds being investigated bought mortgage-linked securities before prices plunged along with the residential real estate market.

The savings programs, known as 529 plans after a section of the U.S. tax code, are sponsored by state governments and administered by firms such as Capital Group Cos., Fidelity Investments and AllianceBernstein Holdings LP. Investors held about $88.5 billion in 529 plans last year, according to Financial Research Corp. of Boston.

About 67 percent of college-savings plan assets are in age- based portfolios, accounts that use a mix of mutual funds and seek to reduce risk by automatically shifting a higher percentage of assets from stocks into bonds and cash as the student beneficiary nears college age.


Oregon officials said Oppenheimer Core Bond Fund was supposed to be a conservative investment, designed for students in college or planning to go to college within one to three years.

Instead, OppenheimerFunds put the money “into a hedge- fund-like investment fund that took extreme risks in a search for speculative large returns,” the Oregon statement said.

Illinois, Maine, New Mexico and Texas are investigating OppenheimerFunds over college-savings plan investments. Illinois investors have lost $85 million last year in accounts managed by OppenheimerFunds, according to the office of State Treasurer Alexi Giannoulias. The other three states have not published estimates of their losses.

Oregon, Illinois and Texas have pulled college-savings money from OppenheimerFunds.

Pisarra, the OppenheimerFunds spokeswoman, said last week that the company acted appropriately and blamed the fund losses on “unprecedented market volatility and lack of liquidity in the second half of 2008.”

The Oppenheimer Champion Income Fund, which has fallen 79 percent in the past 12 months, is also the subject of scrutiny by Illinois, Maine, New Mexico and Texas. In February, shareholders who invested in the fund outside a college-savings plan filed suit against OppenheimerFunds in U.S. District Court in Colorado, alleging that they were sold the fund as a conservative high-income option.

OppenheimerFunds was the seventh-largest college-savings plan manager last year with $3.9 billion in assets, according to Financial Research.

To contact the reporter on this story: Charles Stein in Boston at"

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