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Fund Spy

A Matter of Disclosure

The SEC has finally weighed in on one of the financial crisis' biggest blunders.

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The wheels of justice may turn slowly, but they do turn. It has been more than three and a half years since the 2008 financial crisis saw the implosion of two Oppenheimer bond funds. The managers of both  Oppenheimer Core Bond (OPIGX) and Oppenheimer Champion Income (OPCHX) had made large bets on a slice of the commercial mortgage-backed securities market by purchasing so-called total return swaps for the portfolios. That bet effectively added leverage to the funds, and each sustained massive losses when the CMBS market tanked in 2008. We took an in-depth look at what happened back then, and one of our chief concerns was that Oppenheimer had done very little in its marketing and regulatory materials to explain just how much risk its portfolios had been taking.

It was therefore interesting to see the SEC charge Oppenheimer with making misleading statements about its funds during the 2008 crisis. One key complaint was that the firm had apparently told advisors that the funds could still make back all of their CMBS-related losses. At the same time, Oppenheimer had allegedly been cutting the funds' CMBS exposures (ostensibly at depressed prices) to the point that recovering those losses in the event of a rebound became highly unlikely.

Eric Jacobson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.