Oppenheimer to pay $35m to settle SEC charges
Oppenheimer Funds has been charged by the US Securities and Exchange Commission (SEC) for making misleading statements about two of its mutual funds during the credit crisis in late 2008.
Oppenheimer agreed to pay more than $35m to settle the charges, according to a statement by the SEC.
The investigation found that Oppenheimer used total return swaps to add substantial commercial mortgage-backed securities (CMBS) exposure in a high-yield bond fund called the Oppenheimer Champion Income Fund and an intermediate-term, investment-grade fund called the Oppenheimer Core Bond Fund.
According to the SEC, the 2008 prospectus for the Champion fund didn’t adequately disclose the fund’s practice of assuming substantial leverage in using derivative instruments.
When declines in the CMBS market triggered large cash liabilities on the contracts in both funds and forced Oppenheimer to reduce CMBS exposure, Oppenheimer disseminated misleading statements about the funds’ losses and their recovery prospects.
“Mutual fund providers have an obligation to clearly and accurately convey the strategies and risks of the products they sell. Candour, not wishful thinking, should drive communications with investors, particularly during times of market stress,” said Robert Khuzami, director of the SEC’s division of enforcement.
In reaching these settlements, Oppenheimer neither admitted nor denied the SEC’s allegations.
In a statement since released, Oppenheimer said it fully cooperated with the SEC from the outset of its investigation and voluntarily implemented a variety of remedial measures in the wake of the 2008 financial crisis, including replacing the portfolio management team responsible for Champion Income Fund and Core Bond Fund.
Bill Glavin, chairman, president and chief executive at Oppenheimer Funds, said: “We are pleased to have reached a settlement that we believe is in the best interests of the company and those investors that experienced losses during the period of unprecedented volatility and uncertainty that defined the global financial crisis.”