Reuters: Regulatory News: UPDATE 1-OppenheimerFunds in SEC accord on bond funds

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UPDATE 1-OppenheimerFunds in SEC accord on bond funds Jun 6th 2012, 16:20 Wed Jun 6, 2012 12:20pm EDT * Champion Income, Core Bond funds had big losses in 2008 * SEC: OppenheimerFunds misled investors about risk * OppenheimerFunds did not admit wrongdoing By Jonathan Stempel June 6 (Reuters) - OppenheimerFunds Inc agreed to pay $35.4 million to settle U.S. Securities and Exchange Commission charges it misled investors about the safety of two bond mutual funds that suffered steep losses during the 2008 financial crisis, the agency said on Wednesday. The SEC said OppenheimerFunds , majority-owned by Massachusetts Mutual Life Insurance Co, used derivatives k nown as total return swaps t o add substantial commercial mortgage-backed securities to its hig h-yield Ch ampion Income fund and inte rmediate-term, investment-grade Core Bond fund. Champion Income's Class A shares lost 78.53 percent in 2008, about triple the 26.41 percent loss for its peer, and was one of the worst-performing mutual funds of any kind that year, according to Morningstar Inc. Core Bond's A shares lost 35.83 percent in 2008, versus an average drop of 4.7 percent for peer funds, Morningstar said. The SEC said the Champion fund's prospectus did not adequately disclose its practice of taking on substantial leverage through derivatives. It also said, as the funds sold holdings at big losses to cover payments on swaps contracts, OppenheimerFunds misled investors about the losses and recovery prospects. "Mutual fund providers have an obligation to clearly and accurately convey the strategies and risks of the products they sell," SEC enforcement chief Robert Khuzami said in a statement. "Candor, not wishful thinking, should drive communications with investors, particularly during times of market stress." OppenheimerFunds did not admit or deny the SEC findings. The settlement includes a $24 million fine, $9.9 million in disgorgement, and $1.5 million in interest. The company said it also voluntarily took remedial steps, and replaced the management team at both funds. OppenheimerFunds ended March with more than $183 billion in assets under management. The settlement "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," OppenheimerFunds Chief Executive Bill Glavin said in a statement. Last year, OppenheimerFunds agreed to pay $100 million to resolve lawsuits by investors in the funds who claimed they were misled about the risks. A federal judge in Denver approved the accord in September. Link this Share this Digg this Email Reprints

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