OppenheimerFunds reaches $77 million settlement with Illinois

Chris Rizo Dec. 22, 2009, 2:00pm

Lisa Madigan (D)

SPRINGFIELD, Ill. (Legal Newsline)-Illinois will receive a $77.2 million refund from OppenheimerFunds Inc. from losses to the state's 529 college savings plan, state Attorney General Lisa Madigan said Tuesday.

The money will go to families who lost money in their Bright Star college savings accounts because of risky investments made by OppenheimerFunds, an asset management company based in New York.

"As a result of this agreement, Illinois families invested in this fund will be able to recover substantial losses in their college savings accounts in a timely manner while avoiding the uncertainty and delay that would accompany lengthy and expensive litigation," Madigan said in a statement.

OppenheimerFunds Core Plus Fixed Income Strategy, one of Bright Start's 21 underlying funds, was marketed as a conservative investment for beneficiaries who were at or near college age, but the fund contained risky investments, Madigan said.

Core Plus lost 38 percent of its value in 2008. By comparison, the bond index used as the fund's benchmark rose 5.24 percent in the same period, officials said. The funds that replaced Core Plus have experienced year-to-date returns of 8 to 9 percent, the statement said.

The Bright Star program allows families to save money and pay no taxes on earnings and make tax-free withdrawals to pay college expenses. The program is qualified for tax savings under Section 529 of the Internal Revenue Code.

Bright Start participants who had exposure to Core Plus between Jan. 1, 2008, and Jan. 25 are covered under the settlement. Participants who had losses of at least $20 as of Sept. 30 will be eligible for settlement proceeds.

OppenheimerFunds, a unit of Massachusetts Mutual Life Insurance Co., agreed to pay $67.3 million earlier this month to settle similar allegations by New Mexico Attorney General Gary King. The company agreed in November to pay $20 million to settle a lawsuit by Oregon Attorney General John Kroger.

From Legal Newsline: Reach staff reporter Chris Rizo at chrisrizo@legalnewsline.com.

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