Firm allegedly failed to disclose use of derivatives in two funds adequately; agrees to pay $35M to settle the charges
OppenheimerFunds has agreed to pay $35 million to settle charges that the firm issued misleading statements about two of its mutual funds during the financial crisis.
A Securities and Exchange Commission investigation found that OppenheimerFunds didn't adequately disclose the use of derivatives to add leverage to the Oppenheimer Core Bond Fund Ticker:(OPIGX) and the Oppenheimer Champion Income Fund Ticker:(OPCHX).
“Mutual fund providers have an obligation to clearly and accurately convey the strategies and risks of the products they sell,” Robert Khuzami, director of the SEC's Division of Enforcement, said in a release. “Candor, not wishful thinking, should drive communications with investors, particularly during times of market stress.”
In reaching a deal with the commission, OppenheimerFunds neither admitted to nor denied the SEC's findings. “We are pleased to have reached a settlement that we believe is in the best interests of the company and those investors that experienced losses during the period of unprecedented volatility and uncertainty that defined the global financial crisis,” Bill Glavin, chief executive of OppenheimerFunds Inc., said in a prepared statement.
The added leverage, which was used to add “substantial” exposure to commercial-mortgage-backed securities to the funds, according to the SEC, backfired on the funds in 2008 when the real estate market collapsed.
The Oppenheimer Core Bond Fund lost 36% in 200, while the average intermediate-term-bond fund lost 5%. The fund was the subject of several lawsuits because of its role in state Section 529 college savings plans. It settled the suits for an undisclosed amount in 2011.
The Oppenheimer Champion Income Fund lost 78% of its value, 52 percentage points worse than the average high-yield-bond fund.
Oppenheimer removed both funds' management teams in April of 2009.
