Oppenheimerfunds Agrees to Pay $35 Million to Settle SEC Charges for Misleading Statements During Financial Crisis

In the Matter of Oppenheimerfunds, Inc. and Oppenheimerfunds Distributor, Inc., AP File No. 3-14909.  On June 6, 2012, the SEC issued an Order Instituting Cease-And-Desist Proceedings against Oppenheimerfunds, Inc. (“OFI”) and Oppenheimerfunds Distributor, Inc. (“OFDI”) for making misleading statements about two of its mutual funds during the credit crisis in 2008.  In 2008, these two funds experienced losses much greater than their peer funds.  Their underperformance was largely due to exposure to mortgage-backed securities.  The exposure was obtained through derivatives known as total return swaps.  In late 2008, the mortgage-backed securities market crashed causing the OFI managed mutual funds to sell large portions of their portfolio to meet the liabilities.  OFI directed the funds’ managers to cut the exposure which reduced the risk of further losses but also limited the funds’ ability to recover lost value in the event of a recover in the mortgage-backed securities market.  In response to questions from financial advisers and shareholders, OFI and OFDI claimed the mutual funds had only suffered paper losses which could be reversed when the credit markets rebounded.  In addition, OFI and OFDI sold shares of a fund under a prospectus that highlighted cash investments in junk bonds without adequately disclosing the fund’s practice of assuming leverage through the use of derivatives.

In accepting the settlement offers, the SEC considered OFI’s and OFDI’s cooperation with the investigation and the remedial acts undertaken.  The undertakings included on-going cooperation in any investigations or litigation related to the matters in the Order, such as producing documents without subpoenas and making witnesses available for interviews, testimony or depositions without subpoenas.  The Order requires that OFI and OFDI cease and desist from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, Section 206(4) of the Investment Advisers Act and Rules 206(4)-8(a)(1) and (2) thereunder, and Section 34(b) of the Investment Company Act.  Finally, OFI and OFDI will pay in excess of $35 million in civil monetary penalties, disgorgement and prejudgment interest.

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