Archive for the “Oppenheimer Funds” Category

Unexpected and unexplained losses in the Oppenheimer Champion Income Fund (OCHCX), the Oppenheimer Core Bond Fund (OPIGX) and other funds owned and managed by OppenheimerFunds are causing a financial headache for investors, college savings plans and pension funds across the country. Now, as OppenheimerFunds prepares for what could be the first of a lengthy run of arbitration claims, a consortium of four nationally recognized law firms has launched an independent investigation into how Oppenheimer executives may have misrepresented the funds to investors.

The legal alliance behind the investigation into OppenheimerFunds includes Maddox Hargett & Caruso, Uhl & Bakhtiari, David P. Meyer & Associates, and Page Perry, LLC. It was in 2007, following the onset of the subprime mortgage crisis and the subsequent meltdown on Wall Street, that the group created their affiliation - SubprimeLosses.com - to help individual and institutional investors combat fraudulent actions on the part of dishonest investment firms and brokerages.

As it turns out, dishonesty and wrong-way bets on subprime mortgage securities and risky credit-default swaps are responsible for the fiscal nightmare now facing investors in the Oppenheimer Champion Income Fund and the Core Bond Fund. The funds, which initially had been presented as conservative and safe investments by Oppenheimer management, were instead tied to high-risk, speculative derivative deals.

By the end of December 2008, assets in the Champion Income Fund had plunged by more than 80% in value. The Oppenheimer Core Bond Fund, which is offered by 529 plans in Illinois, Oregon, Texas, Maine and New Mexico, fell by more than 40% last year. By comparison, similar funds posted 4% gains.

Both the Oppenheimer Champion Fund and the Core Bond fund were managed by Angelo Manioudakis. In December, Manioudakis abruptly resigned from his position at OppenheimerFunds.

Meanwhile, investors are left to inherit the repercussions of Manioudakis’ ill-informed management decisions. Far from safe or conservative, the Champion and Core Bond funds invested in extremely risky and highly illiquid derivatives. Not knowing about this critical detail has collectively cost investors - many of whom are retirees, living on a fixed income - millions of dollars. Yet, Oppenheimer management, company marketing materials, even information contained in the funds’ prospectus never revealed this important and vital fact.

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.

A champion it’s not. Investments in high-risk mortgage-backed securities and credit-default swaps have pummeled the Oppenheimer Champion Income Fund (OPCHX). OppenheimerFunds’ flagship junk-bond mutual fund recorded one of the worst performances among its bond-fund peers in 2008, with assets losing more than 80% of their value. Only the Regions Morgan Keegan Select High Income Fund fared worse.

Problems for Oppenheimer’s Champion Income Fund first came to light in 2006, when fund manager Angelo Manioudakis started to focus on a risky - and, some say questionable - investing strategy that involved total-return swaps. A total return swap is a financial contact that transfers both the credit risk and market risk of an underlying asset from one party to another.

In the case of the Champion Income Fund, the underlying assets were tied to securities on commercial mortgages. Following the burst of the housing bubble in the summer of 2007 and the subsequent onset of the subprime debacle, Manioudakis’ gamble that the securities would increase in value never saw the light of day.

Making matters even worse for the Champion Income Fund: credit-default swaps. Through at least September 2008, the fund sold credit-default swaps on companies that already were in deep financial trouble - companies like Lehman Brothers Holdings, which filed for bankruptcy protection on Sept. 15, and American International Group (AIG), which has required two emergency bailouts from the government in order to stay afloat.

The financial devastation caused by wrong-way bets placed on derivatives goes far beyond just investors of the Champion Income Fund. At least 10% or more of the fund is held by other Oppenheimer funds, as well.

Unfortunately, investors never realized the level of risks they were taking on with the Champion Income Fund. That’s because Oppenheimer’s financial advisors marketed the fund as a conservative, high-income bond fund, one that presented only minimal degrees of risk. Even the fund’s own prospectus - as well as a revised version that was created after the fund began to lose vast amounts of money - described the Champion Income Fund as an appropriate investment for retirees, with an overall investment strategy that focused on building a broad and diversified portfolio to help moderate the special risks of investing in high-yield debt instruments.

Investors who’ve lost millions of dollars because of Oppenheimer’s irresponsible gamble on some of the riskiest and most toxic derivatives possible know otherwise.

In related OppenheimerFunds news, thousands of Illinois families are up in arms over unexpected and dramatic losses in the state’s Bright Start College Savings program and what they say is the mismanagement of the Oppenheimer Core Plus Bond Fund (OPIGX).

The fund, which was supposed to be invested in conservative investment-grade bonds and U.S. government securities but instead took on assets in risky mortgage-backed securities, credit default swaps and other toxic investments, lost more than 40% of its market value last year. By comparison, similar funds managed by other investment firms posted positive returns of about 5%.

Illinois State Treasurer Alexi Giannoulias is preparing to sue OppenheimerFunds in an attempt to recover the $85 million that the Bright Start College Savings program has lost thus far.  

Like Oppenheimer’s Champion Income Fund, the Core Plus Bond Fund was managed under the not-so-watchful eye of Angelo Manioudakis.  Besides Illinois, the Oppenheimer Core Plus Fund is included in 529 college savings plans in Oregon, Texas, Maine, and New Mexico.

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. 

Investors in the Oppenheimer Champion Income Fund (OCHBX, OPCHX and OCHCX) have lost millions of dollars because of decisions by the fund’s management to gamble on illiquid mortgage securities and credit-default swaps. Now, some investors - many of whom are retirees and have lost their entire life savings - are taking legal action. The first of what may be many arbitration claims to come has just been filed with the Financial Industry Regulatory Authority (FINRA).

Among the charges in the complaint: OppenheimerFunds and the former manager of the Oppenheimer Champion Income Fund, Angelo Manioudakis, intentionally withheld critical information about the fund’s risks and its concentration in toxic derivatives and other risky securities. 

As of Dec. 31, 2008, the Oppenheimer Champion Income Fund has seen the value of its assets plunge by more than 80%. The reason: Massive bets on subprime mortgage securities and total-return swaps. Total-return swaps are extremely complex agreements between parties to exchange cash flows in the future based on the performance of a set of underlying securities in the fund.

The Oppenheimer Champion Income Fund also contained credit-default swaps, another complicated and highly speculative derivative product. Credit-default swaps are like an insurance policy; they protect investors in the event a bond or loan defaults. In return for this guarantee, buyers agree to pay - much like an insurance premium - a fixed percentage fee to the seller of the contract.

There is a downside to this kind of speculative leveraging, however. Billionaire investor Warren Buffet spoke out against credit-default swaps as early as 2002, calling them “financial weapons of mass destruction.”

The $50-plus trillion market for credit-default swaps is unregulated. That means contracts are regularly traded without any oversight to ensure buyers actually can cover possible losses. When the mortgage-backed securities that many credit-default swaps were supporting began to plummet in value in 2007, investors quickly discovered their credit-default swaps to be a liability, rather than a guarantee, against risk. 

For sellers of credit-default swaps, the outcome can be equally grim. This is especially true in instances where the seller has provided insurance on companies that go bankrupt or experience severe financial problems. Oppenheimer’s Champion Income Fund found this out after selling credit-default swaps on Lehman Brothers Holdings, American International Group (AIG) and General Motors Corp.

At issue for investors in the Oppenheimer Champion Income Fund is the fact that the fund’s management, as well as various literature and materials on the fund, touted its investment strategy as “building a broad and diversified portfolio to help moderate the special risks of investing in high-yield debt instruments.”  Investors also claim the fund was advertised as far less risky than the typical high-income fund.

In reality, the Oppenheimer Champion Income Fund achieved neither. Instead, it invested in some of the most dangerous and toxic securities on the market.

For retirees and other conservative, risk-adverse investors who were in the Champion Income Fund, this strategy was a disaster waiting to happen.

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. 

The past 12 months have not been pretty for mutual fund manager Ronald Fielding and the Oppenheimer Rochester National Municipals fund he oversees. After losing nearly 50% of its value, the fund ended up as the worst performer in the open-end municipal bond fund category in 2008, according to Morningstar, Inc.

Problems for the Rochester National Municipals fund add to a slew of setbacks for New York-based OppenheimerFunds. In recent months, the company has encountered a lengthy losing streak with several of its bond funds, including the Champion Income fund. After making bad bets on risky mortgage-backed securities, the Champion fund plummeted nearly 80% last year, making it the worst-performing taxable high-yield bond fund of 2008. On Dec. 12, the fund’s manager, Angelo Manioudakis, abruptly resigned from his position with OppenheimerFunds.

Meanwhile, several investors who unexpectedly lost huge amounts of their money in the Champion Income fund have filed complaints with the Financial Industry Regulatory Authority (FINRA), charging that Manioudakis and Oppenheimer failed to disclose the fund’s risks to them.

As for Oppenheimer’s Rochester National Municipals fund, its financial woes began in 2007, following the onset of the subprime mortgage debacle. As of Dec. 31, 2008, the fund had $3.6 billion in assets; three months earlier it was valued at $6.7 billion, according to a Jan. 8 article by Bloomberg.

The losses are yet another black mark against OppenheimerFunds, which owns the hedge fund firm Tremont Group Holdings. In late December, Tremont revealed it had gambled and lost more than $3 billion in the Bernie Madoff Ponzi scheme.

Now it’s Ron Fielding who’s in the hot seat for his questionable management decisions with the Rochester funds. For years, Fielding made his mark in the municipal bond world by buying up the riskiest and least desirable portions of the bond market, including sectors like tobacco and airlines. His gambles failed to pay off, however, when he bought airport bonds secured with airline company revenue following the terrorist attacks of Sept. 11. Another bad bet included the purchase of municipal bonds backed by a 1998 settlement with tobacco companies. A combination of anti-smoking efforts and lawsuits against cigarette manufacturers later proved to drastically reduce demand for the debt.

As a result, Fielding’s funds took on a lot more credit risk. Oppenheimer’s Rochester family offers 18 different bond funds - many of which have 25% of their assets invested in tobacco bonds. In the case of the Rochester National Municipals fund, its most notable holdings are tobacco and airline bonds. One key danger for the fund is the possibility of heavy redemptions in the future. If that happens, the fund would be forced to sell some of its holdings. And in the current market environment, that means selling at well below par value.

In what may be a sign such action is looming, the fund substantially increased its credit line with Citibank last month from $1 billion to $3 billion.

The bottom line: Fielding took on risk - and a lot of it. His contrarian style in the municipal bond arena may have worked at one time, but market conditions are no longer what they used to be. Now, investors are paying the ultimate price for Fielding’s “misguided” behavior.

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.

Things are getting ugly for OppenheimerFunds these days. Not only has Tremont Capital Management, which Oppenheimer owns, lost hundreds of millions of dollars in the Bernie Madoff scandal, but bad bets on toxic mortgage-backed securities and credit-default swaps have decimated bond funds like the Oppenheimer Core Bond Fund and the Oppenheimer Champion Income Fund.

The Oppenheimer Champion Income is down more than 80%, making its performance one of the worst among bond funds for 2008. As for the Oppenheimer Core Bond Fund, it is down by more than 42%.

As reported Dec. 18 in a story by Eric Jacobson on Morningstar.com, the Core portfolio carried approximately $400 million in mortgage-backed securities as of the end of March 2008, “exceeding its (then) $2.2 billion in net assets via transactions that were effectively akin to margin borrowing.”

The fund also had approximately $800 million in exposure to credit via default swaps, including American International Group (AIG), Lehman Brothers, Wachovia, Washington Mutual, and Bear Stearns, as well as around $600 million in total return swaps. These facts, critical to investors, were never included on the fund’s balance sheet, according to the article, and therefore did not appear in its net assets.

By the end of September, the Core Bond’s credit exposure to those various markets “totaled more than 180% of net assets on a dollar basis,” says the Morningstar article. To put it another way, for every shareholder dollar in the fund, it was exposed to the credit-driven movement of more than $1.80 worth of toxic securities.

Making matter worse: Most of the additional market exposure came from off-balance-sheet derivatives, giving the appearance to investors that the funds’ portfolios were not highly leveraged and therefore more fiscally sound than what was reality. And despite the fact that both the Core Bond fund and the Champion Fund were highly exposed to commercial mortgage-backed securities, detailed information regarding the extent of that over-concentration was and is no where to be found in any of Oppenheimer’s marketing materials or on Web site.

The ramifications of Oppenheimer’s behind-the-scenes gamble with derivative bets gone bad have been painful for investors. In particular, parents who invested in several state-run college savings plan are facing major financial losses because of portfolios containing the sinking Oppenheimer funds. To top it off, the losses hit the most conservative plans the hardest.

In Oregon, the 529 College Savings Plan includes more than 70,000 investors who are saving college money for 100,000 children, grandchildren and others. The plans in the network are worth about $750 million. One year ago, the value was $1 billion. About $89 million was invested in the Oppenheimer Core Bond Fund in September 2008.

In October 2008, the board that oversees the Oregon College Savings Plan questioned Oppenheimer about the fund’s poor performance. At the time, Oppenheimer managers said they bought the mortgage-backed securities when they believed the price had bottomed out. However, the securities continued to lose value, yet Oppenheimer just kept buying them.

In Oregon’s case, an investigation with the attorney general’s office is underway regarding Oppenheimer’s actions. But the bottom line is clear: The returns on the funds simply don’t add up to what Oppenheimer represented.

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. 

Many parents with money tucked away in 529 college savings plans are shocked to learn that their children’s future education could be at risk because of massive losses tied to the Oppenheimer Core Bond Fund (OPIGX). The bond fund, which is offered by 529 plans in Oregon, Texas, Maine and New Mexico, fell nearly 40% last year. By comparison, similar funds posted 4% gains.

Problems for the Oppenheimer Core Bond Fund are tied to bad bets made by the fund’s management team on high-risk mortgage-backed securities and credit-default swaps. When the housing market hit a wall last year and credit froze up, those investments essentially became worthless.

As reported Jan. 1 by USA Today, the Texas College Savings Plan’s had 50% of its assets in the Oppenheimer Core Bond Fund. As a result, the portfolio fell 21% in 2008.

Faring even worse is the state of Maine. Its NextGen College Investing Plan had 40% of its assets in the Oppenheimer Core Bond Fund. As of Nov. 28, 2008, the portfolio had fallen more than 42% in value.

Parents, many of whom have students either about to enter college or currently enrolled, are now feeling the repercussions of the fund’s unexpected losses. Making matters even worse, the fund was marketed as ultra-safe and a conservative investment.

In Oregon, OppenheimerFunds manages the portfolios of three plans under the 529 College Savings Network. Parents who invested in some of the college savings plans most conservative portfolios have now lost thousands of dollars because of the Oppenheimer Core Bond Fund. Currently, Oregon’s state attorney general’s office has launched an investigation to determine if Oppenheimer misrepresented the bond fund to investors.

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.