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Oppenheimer Settles SEC Charges for $35 Million

Hennessy buys FBR, Miller takes another step toward retirement, and more.

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The Securities and Exchange Commission this week charged OppenheimerFunds with making misleading statements about two of its mutual funds during the 2008 financial crisis. Oppenheimer agreed to pay $35 million to settle the charges. According to the SEC's order, Oppenheimer made misleading statements in the 2008 prospectus for Oppenheimer Champion Income (OPCHX) by not disclosing that the fund could use derivatives to such an extent that they could be the primary influence on the fund's returns. The SEC also found that Oppenheimer disseminated misleading statements to shareholders about Champion Income and  Oppenheimer Core Bond (OPIGX) amid the financial crisis. According to the order, Oppenheimer communicated to shareholders that the funds had not suffered permanent impairments, when in fact the funds had been forced to sell bond holdings that resulted in realized investment losses.

Leading up to 2008, the management team running the two funds made overly aggressive bets on mortgage-related securities. Specifically, the managers increased the funds' exposure to commercial mortgage-backed securities by entering into derivative contracts known as total return swaps. These swaps allowed the funds to add market exposure on top of the assets on their balance sheets. Those bets unraveled in 2008, and by the end of the year, Champion Income had lost 78.5% and Core Bond had dropped 35.8%.

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