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Home > Blog > SEC Fines OppenheimerFunds $35M Over Bond Funds

SEC Fines OppenheimerFunds $35M Over Bond Funds

OppenheimerFunds will pay $35 million to settle charges by the Securities and Exchange Commission (SEC) that it failed to adequately inform investors about using derivatives to add leverage to the Oppenheimer Core Bond Fund (OPIGX) and the Oppenheimer Champion Income Fund (OPCHX).  

According to the SEC’s investigation, Oppenheimer used derivative instruments known as “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 known as the Oppenheimer Core Bond Fund.

The 2008 prospectus for the Champion Fund, however, never sufficiently revealed the fund’s practice of assuming such leverage in using derivative instruments, the SEC said in a statement. And when declines in the CMBS market triggered large cash liabilities on the total return swap 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,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Candor, not wishful thinking, should drive communications with investors, particularly during times of market stress.”

The Oppenheimer Core Bond Fund lost nearly 40% in 2008, while the average intermediate-term-bond fund lost 5%. Later, the fund became the focus of several lawsuits because of its role in state Section 529 college savings plans. The suits were settled for an undisclosed amount last year.

Meanwhile, the Oppenheimer Champion Income Fund lost 78% of its value, more than 50 percentage points worse than the average high-yield-bond fund.

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