Illinois Reaches $77M Settlement with Oppenheimer Over College Fund

Illinois Attorney General Lisa Madigan and Treasurer Alexi Giannoulias have reached a settlement agreement with OppenheimerFunds Inc. and three subsidiaries to resolve an investigation into the company’s management of one of the underlying funds in the state’s 529 college savings plan, Bright Start, the AG’s office reported.

According to the terms of the settlement, Oppenheimer agrees to pay Illinois $77.23 million, which will be distributed to eligible Bright Start account holders.

Last January, the Attorney General began an investigation after the Treasurer warned that Bright Start program portfolios exposed to Oppenheimer’s Core Plus Fixed Income Strategy (Core Plus), one of Bright Start’s 21 underlying funds, had suffered extraordinarily high losses in comparison to the bond index used as its benchmark.

Oppenheimer had marketed Core Plus as a conservative investment vehicle appropriate for beneficiaries who were at or near college age. Core Plus, however, contained risky investments and was highly leveraged by its Oppenheimer management team, which, in turn, resulted in excessive losses.

The management team is no longer with Oppenheimer.

The Bright Start participants covered by the settlement are those who had portfolios exposed to Core Plus at any time from Jan. 1, 2008, through Jan. 25, 2009.

Those participants who had losses of at least $20 as of Sept. 30, 2009, will be eligible for their share of settlement proceeds.

The settlement specifies that all funds must be distributed to the Bright Start participants and not used to pay for administrative or attorneys fees. Oppenheimer will pay all costs associated with administering the settlement.

Under the terms of the agreement, eligible Bright Start participants will receive release forms in early 2010. The proceeds of the settlement will be distributed to participants

In reaching this agreement with Oppenheimer, Illinois has worked with other states, including New Mexico, Texas, Maine and Nebraska. Illinois is the first state to execute a final settlement agreement with Oppenheimer.

Source: Illinois Attorney General’s Office