December 22, 2009
Oppenheimer Funds, Inc., has agreed to settle a suit with the State of Illinois over the company's college savings program.
Attorney General Lisa Madigan and Treasurer Alexi Giannoulias brought the case following an investigation into the company's management of one of the underlying funds in the states 529 college savings plan, Bright Start.
Under the terms of the settlement, Oppenheimer agrees to pay Illinois $77.23 million, which will be distributed to eligible Bright Start account holders. The company maintains that it acted lawfully and in good faith in managing the investments in the Bright Start program.
"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.
"Working in conjunction with Attorney General Lisa Madigan's office, we achieved our goal of reaching a landmark settlement that recoups money for Bright Start families so they can move forward with their college savings goals," Giannoulias said.
Last January, the Attorney General began an investigation after the Treasurer warned that Bright Start program portfolios exposed to Oppenheimer's Core Plus Fixed Income Strategy (Core Plus), one of Bright Starts 21 underlying funds, had suffered extraordinarily high losses in comparison to the bond index used as its benchmark.
Oppenheimer had marketed Core Plus as a conservative investment vehicle appropriate for beneficiaries who were at or near college age. Core Plus, however, contained risky investments and was highly leveraged by its Oppenheimer management team, which, in turn, resulted in excessive losses. The management team is no longer with Oppenheimer.
In a statement, Oppenheimer said the settlement allows both the State and Oppenheimer Funds to avoid a potentially lengthy and expensive legal process and instead "permits Oppenheimer Funds to apply resources to more constructive ends."
OFI Private Investments Inc., an Oppenheimer Funds subsidiary, remains the program manager for the Bright Start program.
