Oregon sues manager of state's college savings plan

[depakid]

Source: The Oregonian

Oregon is suing OppenheimerFunds, Inc., the manager of the state's college savings plan, today in Marion County Court seeking repayment of at least $36.2 million participants have lost in the plan. The suit claims Oppenheimer violated Oregon securities law, breached its contract and fiduciary duty and misrepresented the savings plan in a negligent manner, state Treasurer Ben Westlund and Attorney General John Kroger announced this morning.

"We are taking action on behalf of Oregon families whose college accounts were battered -- and their financial futures jeopardized -- because of OppenheimerFunds," said Westlund, who chairs the five-member board that oversees the plan, in a written statement. The lawsuit is the result of a three-month investigation by Kroger's office that found Oppenheimer misrepresented extremely risky investments as "conservative" or "ultra-conservative." The investments were like a hedge fund that looked for speculative large returns, according to Kroger's office. About 100,000 investors are saving for college for about 70,000 children, grandchildren and others in the Oregon 529 College Savings Plan.

According to a 49-page complaint filed this morning in Marion County Circuit Court in Salem, the state alleges that in late 2007 and early 2008, OppenheimerFunds began selling credit default swaps and other high risk derivatives to Wall Street firms. Those derivatives insured the firms against defaults in commercial and residential mortgage-backed securities. "These were high-risk bets that were plainly inappropriate for those saving for college or in college," the state said.

The Core Bond Fund investment managers ignored the warnings of OppenheimerFunds' own risk managers when the fund exceeded its risk controls in April 2008. Instead, fund managers decided they would continue to place "big bets" with the college savings' plan and other investors' money, the complaint says. The fund also purchased bonds sold by Lehman Brothers, AIG, Merrill Lynch, Citigroup and General Motors, the suit alleges. At the same time, it also effectively sold insurance, or credit default swaps, against default to other investors holding those bonds.

Read more: http://www.oregonlive.com/news/index.ssf/2009/04/oregon_sues_manager_of_states.html

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Meanwhile on the federal level, banksters and other assorted fraudsters continue to walk scot free....

[metapunditedgy]

1. This could be interesting. I was in an unrelated fund that got screwed by risky

investments. However, it was marketed as a "money-market" or "money-market-like" fund, and the fund manager said at the front of the prospectus "This is where you put the money you use to put food on your table."

I bet there's lots of situations out there like this.

I'll be watching to see if Oregon gets a nice piece of Congressional pork to cover these costs and the case goes away. Otherwise, it could start a precedent that makes things very bumpy going forward.

[Bluenorthwest]

2. Westlund and Kroger...

Democrats acting like Democrats!

[Iowa]

3. And the citizens of Oregon should sue the State of Oregon...

...for making the staggeringly bone-headed decision to use Oppenheimer in the first place! People who have the even a rudimentary understanding of investing would never even consider Oppenheimer. Oppenheimer wouldn't even exist were it not for investment rubes and neophytes who have absolutely no clue what they're doing. Whoever chose Oppenheimer for Oregon's 529 plan is either staggeringly incompetent or corrupt. Here we have a State agency sponsoring a 529 plan with massive annual expenses (and by massive, I mean over 500% of the annual fees I pay for similar investments). And on top of that abomination, they actually force their citizens to pay a large SALES COMMISSION! People who understand investing would never, ever, ever pay a sales commission for investments like these.

The real story here is NOT that Oppenheimer screwed their investors by selling credit default swaps without disclosing the risks (although that is certainly bad), it's that the State of Oregon had someone at the helm who was f*cking dumb enough to screw the State's citizens by forcing them into such a shitty arrangement in the first place. Oppenheimer was given permission by the State of Oregon to screw unsophisticated and unsuspecting Oregon citizens long before Oppenheimer began selling credit default swaps. This has been going on for as long as Oppenheimer has managed Oregon's 529 plan. Whoever was responsible for choosing Oppenheimer was either grossly incompetent or corrupt, because there can be no other explanation for choosing Oppenheimer. It is almost unbelievable that anyone in such a position could be so stupid. The incompetence (or corruption) involved simply cannot be overstated.

I hope the Oregon press actually picks up on the real story here, and that the citizens of Oregon tar and feather the worthless State official who chose Oppenheimer for the State's 529 plan - because that's the real story. Hopefully it was a Republican.

[depakid]

4. Oregon's not the only state to get hit

The Texas College Savings Plan's blended age-based portfolio for children 18 years and older has 50% of its assets in the fund. The portfolio fell 21% in 2008.

Kevin Deiters, director of educational opportunities for the state comptroller's office, says state officials are disappointed in the fund's performance but haven't made any decisions about whether to replace it.

•ScholarsEdge, a 529 plan offered by New Mexico, has 25% of its age-based portfolio for children 18 and older invested in the fund, according to the plan prospectus. That portfolio dropped 17% last year.

•Maine's NextGen College Investing Plan offers a balanced fund portfolio that has 40% of its assets in the fund. Through Nov. 28, the most recent information available, the portfolio was down more than 42%.

•Oregon's College Savings Plan has 20% of its ultra-conservative portfolio — aimed at parents of children who are in college — in the Core Bond fund. That portfolio fell 9% last year.

http://www.usatoday.com/money/perfi/college/2009-01-01-oppenheimer-bond-fund-529-plans_N.htm

Illinois also took a big hit.

http://www.bloomberg.com/apps/news?sid=afmB.7qR9z2M&pid=20601087

Haven't seen any personal lawsuits yet, but I wouldn't be surprised if some popped up in the 18 months or so.

[Liberal_in_LA]

5. The parents would have done better to keep the money in a jar