Oppenheimer Bond Funds
New York-based money manager OppenheimerFunds is the subject of both individual investor lawsuits and lawsuits by college savings plans in at least four different states for losses associated with various bond funds.
Several of the lawsuits concern investments in the Oppenheimer Champion Income Fund, which fell nearly 80% in 2008, and another poor performing fund, the Oppenheimer Core Bond Fund, which lost 41%. Two other OppenheimerFunds are the subject of the state investigations: the Oppenheimer Limited Term Government Fund and the U.S. Government Trust.
Wrong-way bets on subprime mortgage securities and risky credit-default swaps have created a financial nightmare for investors in the Oppenheimer Champion Income Fund (OCHCX). The fund has fallen by more than 80% in value, making it the worst-performing taxable high-yield bond fund of 2008. By comparison, similar bonds were down 30%.
It was in 2006 that OppenheimerFunds first began to alter its investing strategy for the Champion Income Fund. Stable investments gave way to riskier bets on “total-return swaps,” which essentially serve as agreements between parties to exchange cash flows in the future based on the performance of a set of underlying securities in the fund. In Oppenheimer's Champion Income Fund, those securities were subprime mortgage-backed securities – investments that failed to rebound after the housing market's collapse in 2007.
By September of 2008, the total-return swaps tied to the Champion Income Fund were down by $47 million.
Adding to the Champion Income Fund's troubles are credit-default swaps. Similar to insurance contracts, credit-default swaps provide protection against bond and loan defaults. In exchange for making possible payouts, sellers of credit-default swaps receive regular interest payments.
Sellers also can face a dangerous downside with credit-default swaps, particularly when it means providing insurance on already financially troubled companies. The Oppenheimer Champion Income Fund sold credit-default swaps on such firms as Lehman Brothers Holdings, American International Group (AIG) and General Motors Corp. In 2008, all three firms either went bankrupt or sought financial protection from the federal government.
Ultimately, these added risks, a fact that apparently was never communicated to investors, translated into even more losses for the Oppenheimer bond funds.
If you are an individual or institutional investor and have concerns or questions about your OppenheimerFunds investments, contact Mark Maddox. We can evaluate your situation to determine if you have a claim.