Oregon sued OppenheimerFunds Inc., charging the New York money manager with understating the risk it took with a bond fund in Oregon's state college-savings plan.
On Monday, Oregon sued the firm for losses of $36 million incurred by participants in the Oregon College Savings Plan, which Oppenheimer manages. The accounts, known as "529" plans, are a way for individuals to save tax-free for college expenses.
At least four other states had hired Oppenheimer to manage parts of their college-savings plans, including Texas, New Mexico, Illinois and Maine. A spokeswoman for Illinois's state treasurer said the state is working with the other states, "to try to negotiate a settlement."
The Oregon lawsuit, filed by its attorney general on behalf of the state treasurer in a county court, says that its 529 plan lost money due to risky investments made by Oppenheimer, which weren't disclosed to the state.
Oregon charges that Oppenheimer Core Bond fund, which was in the state's 529-plan options billed as "conservative," became significantly more risky starting in late 2007 or early 2008. The fund lost 36% of its value in 2008, but its benchmark index, the Barclays Capital Aggregate Bond Index, rose 5.2%.
"The Core Bond Fund was no longer a plain bond fund," the complaint says. "It had become a hedge-fund like investment fund that took extreme risks."
The complaint says the fund veered into credit-default swaps and other derivatives, which the state called "high-risk bets that were plainly inappropriate for those saving for college."
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