Oppenheimer Pays $35 Million for Misleading Advisors and Shareholders

The SEC’s order said the two funds assured financial advisors and fund shareholders that the funds only suffered paper losses and that absent bond defaults, the funds would continue to collect interest payments while awaiting a market recovery. But “these communications were materially misleading because the funds were committed to substantially reducing their CMBS exposure, which dampened their prospects for recovering CMBS-induced losses,” the SEC said.  “Moreover, the funds had been forced to sell significant portions of their bond holdings to raise cash for anticipated TRS contract payments, resulting in realized investment losses and lost future income from the bonds.”

The SEC also faulted the Champion fund’s prospectus for inadequately disclosing the high-yield bond fund’s reliance on the leveraged total return swaps to the extent that “the fund’s total investment exposure could far exceed the value of its portfolio securities and, therefore, that its investment returns could depend primarily upon the performance of bonds that it did not own.”

Oppenheimer had no comment, but referred AdvisorOne to a statement in which the company said it neither admitted nor denied the SEC’s allegations. The statement quoted CEO Bill Glavin saying Oppenheimer was “pleased” with the settlement and was working to “enhance our fund disclosure, risk management and compliance controls.” Glavin added, “We attach the utmost importance to our regulatory obligations and our fiduciary duties to our advisory clients.”

In reaching the settlement with Oppenheimer, the SEC followed its longstanding policy of settling actions with securities firms neither admitting nor denying wrongdoing, a practice publicly criticized by U.S. Disctrict Court Judge Jed Rakoff.