OppenheimerFunds settles with Oregon; Families to receive refunds

By Chris Rizo | Nov 20, 2009

John Kroger (D)

Ben Westlund II (D)

SALEM, Ore. (Legal Newsline)- OppenheimerFunds Inc., manager of Oregon's college savings plan, has reached at $20 million agreement in principle with the Beaver State over losses program participants suffered after the company invested funds in risky securities.

Attorney General John Kroger had sued in Marion County on behalf of families whose savings were devalued.

The lawsuit filed in April against New York-based OppenheimerFunds and two of its affiliates had sought $36 million of lost assets in the Oregon College Savings Plan plus interest along with attorneys' fees.

OppenheimerFunds is the investment manager of the Oregon 529 College Savings Network, and is marketed directly to the public. The Oregon 529 College Savings Network allows families receive a state tax deduction of as much as $4,000 a year.

The material terms of the settlement was approved Thursday by the Oregon 529 College Savings Board. A final settlement agreement has not yet been signed.

OppenheimerFunds is a unit of MassMutual Financial Group, based in Springfield, Mass.

In a brief statement, OppenheimerFunds denied any wrongdoing, saying it settled the Oregon lawsuit to avoid "lengthy and expensive legal process and to apply resources to more constructive ends."

The settlement will divide $20 million among about 45,000 account holders. Settlement payments will be based on how heavily individual accounts were invested in the Core Bond Fund, which lost 35.5 percent in value in 2008, while similar funds in the same investment class lost an average of about 5 percent last year.

The average settlement payment will be about $440, state officials estimated. The funds will be distributed by February.

"When big financial institutions behave irresponsibly, they must be held accountable," Kroger said in a statement. "I am happy that our aggressive investigation resulted in a prompt resolution of this case."

Officials said investors in the college savings program lost at least $36.2 million because of Oppenheimer's alleged actions. Last year, Oregon's college savings program saw its aggregate value decline by nearly 25 percent, to about $770 million.

In the lawsuit, Kroger and fellow Democrat state Treasurer Ben Westlund II alleged that the company broke securities law and other committed other legal violations, including breach of contract, breach of fiduciary duty, negligence and negligent misrepresentation, because the fund did not alert the state that program investments were placed in risky securities.

"We are vigilantly watching out for Oregon families who are investing for a better future," Westlund said. "It was important for the Board to get this matter resolved in a timely way so that money could get back into the accounts of families that need it now, not several years from now."

The Oregon 529 College Savings Board voted in January to remove the Oppenheimer Core Bond Fund from the state 529 portfolio. The Board also voted to terminate the Oppenheimer Limited Term Government Bond Fund.

Oregon's contract with OppenheimerFunds runs through the end of the year. The firm will be replaced by New York-based TIAA-CREF, formally known as the Teachers Insurance and Annuity Association - College Retirement Equities Fund, as the manager of Oregon's college savings plan.

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

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