Oregon Expands Investigation Into OppenheimerFunds Over Bond Fund Losses
Investors in several state college 529 savings program are crying foul over OppenheimerFunds and investment losses that they say were the direct result of poor management. The states of Illinois, Maine, New Mexico and Oregon all have opened investigations into whether OppenheimerFunds and its fund managers violated consumer protection or securities laws.
Now, the state of Oregon is expanding its probe into OppenheimerFunds, issuing subpoenas and adding another fund as part of an investigation into losses suffered by investors in the most conservative portfolios of Oregon’s 529 College Savings Network.
On Feb. 2, Oregon Attorney General John Kroger announced that his office had demanded financial information from OppenheimerFunds for both the OppenheimerFunds Core Bond Fund and the OppenheimerFunds Limited Term Government Bond Fund.
The Oregon Attorney General’s Office is coordinating its probe with attorney general offices in Illinois, Maine and New Mexico, which also have 529 college savings investments with OppenheimerFunds.
Both the Core Bond Fund and the Limited Term Government Bond Fund are considered responsible for massive losses in Oregon’s most conservative college savings portfolios. In 2008, Oppenheimer’s Core Bond fund declined about 40%, with the short-term government bond fund losing 6%.
The Oppenheimer Core Bond Fund was supposed to adhere to a low-risk, conservative investing strategy, one that invested in investment-grade bonds and U.S. government securities. Instead, under the watch of former OppenheimerFunds manager Angelo Manioudakis, the fund had a huge exposure not only to mortgage-backed securities, but also to credit default swaps.
According to Morningstar analyst Eric Jacobson, the investment exposure was the equivalent of 180 percent of its assets. When the housing market tanked at the end of September and the credit crunch began in earnest, those investment choices were made worse by the leverage of the fund’s managers.
Making matters even more frustrating for investors: No disclosures about the investing strategy could be found in Oppenheimer’s legal documents nor were they cited by Oppenheimer managers in interviews with analysts.
On Jan. 22, the Oregon 529 College Savings Board voted to terminate the Core Bond Fund and the Limited Term Government Bond Fund from Oregon’s college savings plan.
Other states, along with thousands of investors, are in the same boat as Oregon after experiencing huge losses in their college savings accounts because of the Oppenheimer Core Bond Fund. Currently, Illinois State Treasurer Alexi Giannoulias is preparing to file a lawsuit against OppenheimerFunds over $85 million of losses in the Core Bond Fund, which he says was improperly managed.
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