OppenheimerFunds Inc. and its distribution unit have agreed to settle U.S. Securities and Exchange Commission proceedings stemming from old broker-dealer revenue-sharing arrangements, the SEC says.[@@]
OppenheimerFunds, New York, has not admitted to doing anything wrong, but it has agreed to end certain practices that the SEC opposes, the SEC says.
OppenheimerFunds is majority-owned by Massachusetts Mutual Life Insurance Company, Springfield, Mass., and is not related to Oppenheimer & Company, New York.
The SEC proceedings have focused on OppenheimerFunds transactions that took place between 2000 and 2003.
During that period, OppenheimerFunds used brokerage commissions on trades involving some of its funds to reduce its distribution unit’s revenue-sharing obligations to some brokers, the SEC says.
The SEC says the OppenheimerFunds arrangements constituted a form of “directed brokerage.”
The term “directed brokerage” refers to the practice of mutual funds considering a securities dealer’s sales of fund shares when selecting dealers to handle fund portfolio brokerage transactions. The SEC banned directed brokerage arrangements in 2004.
In July 2003, OppenheimerFunds discontinued the use of directed brokerage arrangements, and it found that some funds were used improperly to meet revenue-sharing obligations, the company says.
In May 2004 OppenheimerFunds paid $15.8 million to some of the funds and accounts it manages. The payment was equal to the total amount of brokerage commissions used to make revenue-sharing payments, OppenheimerFunds says.
Because OppenheimerFunds made that payment in May 2004, the company now faces no additional civil penalties or disgorgement requirements, the company says.
OppenheimerFunds says it also has complied with an SEC order to set up a compliance program to prevent future abuses.
“We think the settlement reflects our actions in the interest of Oppenheimer fund shareholders, including voluntary termination of directed brokerage, payment to the funds, and full cooperation with the SEC staff throughout their review of our practices,” says OppenheimerFunds Chairman John Murphy.