Oregon Sues OppenheimerFunds Over 529 Investment Losses
Losses totaling $36 million in Oregon’s 529 college savings plan has prompted the state to sue OppenheimerFunds, charging that the money manager made risky investments that were never disclosed to plan participants. Oregon filed its lawsuit against Oppenheimer on April 13, according to an April 14 article in the Wall Street Journal, citing violations of securities law, breach of contract, breach of fiduciary duty, negligence and negligent misrepresentation.
Oregon’s charges against Oppenheimer focus on the Oppenheimer Core Bond Fund, which served as the conservative portion of the investing options offered in the state’s $770 million Oregon College Savings Plan. In late 2007 or early 2008, however, the conservative option turned considerably more risky, with the Core Bond Fund losing nearly 40% of its value. By comparison, its benchmark index, the Barclays Capital Aggregate Bond Index, rose 5.2%.
In the complaint, Oregon states that “the Core Bond Fund was no longer a plain bond fund. It had become a hedge fund like investment fund that took extreme risks.”
Those risks included credit default swaps, total return swaps, derivatives and other high risk, toxic instruments that were a far cry from suitable investments for conservative and ultraconservative portfolios.
On March 27, Oregon replaced the Core Bond Fund with the Dreyfus Bond Market Index Fund. Another Oppenheimer fund, the Limited Term Government Bond Fund, was replaced as well with the Vanguard Short Term Bond Index Fund.
OppenheimerFunds, which is a unit of Massachusetts Mutual Life Insurance Co., also faces scrutiny by attorney generals in four other states for losses suffered in college savings plans. The states include Texas, New Mexico, Illinois and Maine. Officials in those states currently are jointly exploring whether OppenheimerFunds violated its fiduciary duty to investors in their 529 plans.
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