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Oppenheimer Core Bond Fund: Alleged Mismanagement, Omissions Hurt Individuals, 529 College Savings Plans

For years, the OppenheimerFunds Core Bond Fund (OPIGX) delivered steady and consistent returns for investors. Then, in 2008, an altogether different scenario began to unfold: the fund plummeted more than 40% in value. By comparison, similar bond funds actually gained 4%. The shocking performance of the Oppenheimer Core Bond Fund has created unexpected financial pain for thousands of investors and state 529 college savings plans, leaving them to wonder how such losses could occur in what was supposed to be an ultra-safe, conservative fund.

As it turns out, the returns didn't match the representations made by Oppenheimer for one simple reason. Instead of conservative investments, the former manager of the Oppenheimer Core Bond Fund, Angelo Manioudakis, gambled big on toxic mortgage-backed securities - and a lot of them. For every dollar of shareholder capital in the Core Bond Fund, it was being exposed to the credit-driven movement of more than $1.80 worth of securities, according to an analysis conducted by Morningstar back in December.

Of the states that offer the Oppenheimer Core Bond Fund in their 529 plans, all have experienced startling losses in their portfolios because of decisions made by Oppenheimer management to invest - and keep investing - in cheap mortgage-backed securities and other risky and highly complex structured finance deals.

Even more troubling is the fact that Oppenheimer never felt obligated to provide its investors with an explanation as to exactly how or why the Core Bond Fund was falling so much in value. Any detailed data or information regarding the fund's total level of exposure to high-risk commercial mortgage-backed securities was and is non-existent.

The Texas College Savings Plan, which has 50% of its assets in the Oppenheimer Core Bond Fund, fell by more than 21% in 2008. In Maine, the NextGen College Investing Plan has 40% of its assets in the fund. As of the end of November, the portfolio was down by more than 42%.

In Oregon, its College Savings Network plan fell by more than 25% in value last year, with the Oppenheimer Core Bond Fund creating higher-than-expected losses in eight of the plan's 16 investment portfolios. The portfolios most affected by the Oppenheimer Core Bond Fund's poor performance: the supposed ultra-safe and conservative portfolios of the plan. These are the portfolios specifically geared toward families with children who already are in college or about to enroll.

The losses surrounding the Oppenheimer Core Bond created a huge impact on Oregon's one-year performance ranking among state college savings plans. The rankings, which are compiled by savingforcollege.com, placed Oregon in a top spot at No. 8 in 2007. One year later, it had fallen to the bottom - 43rd.

Now, the Oregon Attorney General's Office is looking into whether OppenheimerFunds breached its fiduciary duty to investors. And, in what appears to be another affirmation of Oppenheimer's alleged mismanagement, the board responsible for overseeing Oregon's $770 million in college savings recently decided to drop the Oppenheimer Core Bond entirely from its 529 plan and invest in a more stable option.

The Oppenheimer Core Bond Fund, which held nearly $90 million of Oregon's college investments as of Sept. 30, 2008, has fallen 41% in value in the past year. It closed Friday, Jan. 30, at $5.79 a share.

Katherine Cleland is one of the 70,000 investors in Oregon's College Savings Network. Like thousands of families, she has watched her account balance rapidly spiral downward over the past months. On Jan. 23, Cleland testified before the House Education Committee in Salem, calling on lawmakers to hold fund managers like OppenheimerFunds' accountable for misleading investors into thinking they had invested in a conservative fund when, in fact, it was not.

As reported Jan. 22 by OregonLive.com, representatives from OppenheimerFunds continue to defend their investing strategy for the Core Bond Fund. At the same time, however, Donna Winn, president and CEO of OFI Private Investments, which is the subsidiary of OppenheimerFunds, has conceded that the Oppenheimer portfolios should have been re-evaluated given the state of current market conditions, according to the OregonLive.com article.

The state of Illinois also has experienced big losses in its college savings plan due to the performance of the Oppenheimer Core Bond Fund. The plan is worth about $1.9 billion today, down from the $2.3 billion at the beginning of 2008. More than $85 million of Illinois' losses were in the Oppenheimer Core Bond Fund. Like Oregon, Illinois may file a lawsuit against OppenheimerFunds over misrepresentations and omissions related to the Core Bond Fund's concentration in highly speculative and extremely risky investments.

The apparent missteps of OppenheimerFunds and its managers are causing individual investors in the Oppenheimer Core Bond Fund to take legal action, as well. Already, several arbitration claims have been filed with the Financial Industry Regulatory Authority (FINRA).

If you are an investor in the Oppenheimer Core Bond Fund and believe you were not made aware of the fund's risks, contact us today at 866-827-6537.

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.

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