Class Action Lawsuit Filed Against OppenheimerFunds Over Losses In Champion Income Fund
Investor allegations of mismanagement and negligence regarding an open-ended fixed income mutual fund owned and managed by OppenheimerFunds have resulted in a class-action lawsuit against Oppenheimer and its Champion Income Fund (OPCHX).
Filed on Feb. 13, the complaint charges OppenheimerFunds and various officers and directors connected to the Champion Income Fund of violating the Securities Exchange Act of 1934, the Securities Act of 1933 and the Investment Company Act of 1940.
According to the complaint, OppenheimerFunds and its managers not only failed to exercise due diligence when it came to the Champion Income Fund but also intentionally withheld critical information about their investing strategy. Marketed as a high-yield bond fund, Oppenheimer managers began to substantially increase their use of derivative instruments in late 2006, purchasing high-risk subprime mortgage securities. Information regarding that additional risk exposure, however, apparently was never disclosed to investors until after the Champion Income Fund plummeted in value.
In December 2008, Angelo Manioudakis, the man whose gamble on toxic mortgage-backed securities and other risky structured finance deals ultimately backfired, abruptly resigned as the manager of the Champion Income Fund.
The Oppenheimer Champion Income Fund has lost nearly 80% of its value, making it the worst-performing taxable high-yield bond fund of 2008. By comparison, similar bonds were down 30%.
Credit-default swaps also added to the losses of the Champion Income Fund. Similar to insurance contracts, credit-default swaps provide protection for investors against bond and loan defaults. In exchange for making possible payouts, sellers of credit-default swaps receive regular interest payments.
In the case of the Oppenheimer Champion Income Fund, credit-default swaps were sold on financially troubled companies like Lehman Brothers Holdings, American International Group (AIG) and General Motors Corp. In 2008, all three firms either went bankrupt or sought financial protection from the federal government. That, in turn, had a devastating financial effect on the assets in the Champion Income Fund’s portfolio.
Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.
