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April 21, 2009

Oregon’s Attorney General Files $36 Million Lawsuit Against OppenheimerFunds

Last week, the Oregon’s Attorney General sued OppenheimerFunds Inc. for allegedly mismanaging the state’s 529 College Savings Plan when it recommended a bond that took risks that were not in alignment with the Plan’s conservative investment objectives. The 529 College Savings Plan allows investors to avail of tax benefits while they save for their children’s college education.

According to the $36 million securities fraud lawsuit, the defendants had signed a contract agreeing to recommend only funds that were consistent with the Oregon 529 College Savings Board's investment policy and would let the board know about any fund changes. Also, as an investment adviser, OppenheimerFunds had fiduciary duties it owed the board. The complaint contends that the defendants breached their fiduciary and contractual duties by continuing to recommend the Oppenheimer Core Bond Fund even after it took part in risky leverage and speculative bets with derivatives.

According to the lawsuit, the Oregon College Savings Plan Trust retained the services of OppenheimerFunds to put together, manage, and make recommendations for its portfolios. All recommendations had to be compatible with each portfolio’s objectives.

When OppenheimerFunds initially recommended the Core Bond Fund, the bond was a “straightforward” bond fund that was primarily invested in high quality corporate bonds. That is, until sometime between 2007 and 2008 when fund managers allegedly began taking part in credit default swaps and total return swaps. This, says the lawsuit, dramatically changed the risk profile of the fund.

Yet OppenheimerFunds failed to let the board know about this change until January 22. The fund lost more than 35% of its value in 2008 and another 10% during the first three months of 2009. The complaint says that rather than moderate the degree of risk, OppenheimerFunds increased the risks.

OppenheimerFunds maintains that significant losses occurred as a result of market volatility and not due to dramatic changes in investment strategies and that the Board was notified of all changes. The investment adviser says it is extremely disappointed with the lawsuit and expressed concern that an outside lawyer, and not the state, conducted the probe into the case.

However, Keith S. Dubanevich, the special counsel in the Oregon attorney general’s office, says it is their common practice to retain outside help when dealing with certain areas of law, including securities fraud, and that Oregon’s Justice Department did lead the investigation.

Related Web Resources:
Oregon Sues Over Risks Taken In Its '529' Fund, The Wall Street Journal, April 14, 2009

Oregon 529 College Savings Network

Oregon Attorney

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Posted In: Financial Firms , Oppenheimer , Securities Fraud

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November 20, 2008

Massachusetts Top Securities Regulator Charges Oppenheimer & Co with Unethical Conduct and Fraud

Massachusetts Secretary of State William Galvin is charging Oppenheimer & Co. with unethical conduct and fraud. The state’s top securities regulator is accusing the investment bank of continuing to market and sell auction rate securities to clients even as Oppenheimer executives were getting rid of their own ARS holdings, worth $3 million, before the collapse.

Galvin says that Oppenheimer Chairman and Chief Executive Albert Lowenthal and other firm executives kept clients and other firm employees “in the dark” about the collapsing ARS market. His office is seeking to revoke Lowenthal’s broker-dealer registration in Massachusetts because he says that the CEO and other Oppenheimer executives “betrayed” their clients’ trust. This is the first time that a state regulator has charged one of the smaller brokers for its alleged involvement in the sale of auction-rate securities while the market was failing.

Galvin says that Oppenheimer clients in Massachusetts are unable to access some $56 million because their ARS investments have been frozen since February. Also named in Galvin’s complaint are ARS Managing Director Greg White and Senior Managing Director Robert Lowenthal.

Oppenheimer and its firm executives are denying Galvin’s allegations. On Tuesday, the investment bank issued a statement claiming that its employees had no knowledge of the kinds of actions that their larger firm counterparts engaged in that contributed to the ARS market collapse. The investment bank also maintains that its executives personally bought and sold ARS during the period noted in Galvin's complaint, and they continue to hold a number of these securities.

Oppenheimer says it is working with financing sources and regulators to help investors cash out of their ARS.

Related Web Resources:

Massachusetts sues Oppenheimer & Co over ARS sales, Reuters, November 18, 2008

Galvin blasts Oppenheimer & Co. over auction-rate securities, Boston Herald, November 18, 2008

Related Web Resources:

Read the Complaint (PDF)

View the Exhibits (PDF)

Oppenheimer & Co.

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Posted In: Auction-Rate Securities , Financial Firms , Oppenheimer

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March 5, 2008

Oppenheimer & Co. Agrees to Settle FINRA Market Timing Charges for $4.5 Million

Oppenheimer & Co. has settled Financial Industry Regulatory Association charges regarding the market timing of mutual funds. The company has agreed to pay $4.25 million as restitution to five dozen mutual fund companies, as well as a $250,000 fine.

FINRA says that Oppenheimer failed to stop five traders’ engagement in improper, short-term mutual fund trading. The self-regulatory organization noted Oppenheimer’s failure to set up, manage, and enforce systems of supervision to detect and prevent market timing activities.

As a result, FINRA says that Oppenheimer disregarded hundreds of warnings and requests from mutual funds and life insurance companies that they stop making the improper trades. Some 65 mutual funds even warned Oppenheimer that short-term trades were not in the best interests of long-term shareholders.

FINRA says that five Oppenheimer traders maintained approximately 580 accounts for 15 hedge fund clients. FINRA says that the brokers tried to get around market timing trading blocks. They also tried to hide the real identities of the account holders and distributed the market timing money over multiple accounts.

51 registered representative numbers were used to make it look like reps that hadn’t been blocked were engaging in the trades. The traders used omnibus trading platforms run by Fidelity and Schwab to hide their identities. FINRA says that they also sold variable annuity contracts to hedge fund clients so that they could use the yearly sub-accounts for market timing activities.

The improper activities caused Oppenheimer to generate approximately $9 million in gross revenue. Oppenheimer is not admitting to or denying the allegations by agreeing to settle.

If you are an investor who has lost money because you were the victim of broker misconduct, contact Shepherd Smith and Edwards right way and ask for your free consultation with one of our stockbroker fraud lawyers.

Related Web Resources:

Oppenheimer Pays $4.5 Million in Market-Timing Probe, Bloomberg.com, February 21, 2008

Oppenheimer & Co, Inc.

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November 13, 2007

Oppenheimer to Pay $1 Million to Settle FINRA Bogus Data Charges

Oppenheimer & Co. says it will pay a $1 million fine to settle charges by the Financial Industry Regulatory Authority that it turned in false information regarding mutual fund breakpoints. The company also has agreed to submit to having an independent consultant conduct an audit regarding how Oppenheimer handles regulatory inquiries. By agreeing to the settlement terms, Oppenheimer is not agreeing to or denying FINRA’s allegations.

Background
FINRA says it initially asked Oppenheimer for the information in March 2003 when the self-regulatory organization (then the NASD) looked at over 2000 broker-dealers who had sold front-end loan funds over a two-year period.

FINRA’s request was based on the discovery that nearly one in three mutual fund transactions in front-end loans seemed to qualify for a discount but did not get one.

FINRA says that in June and November 2003, Oppenheimer turned in data that was not complete or accurate after FINRA’s request that brokers assess their breakpoint practices. The term breakpoint refers to discounts or other benefits clients can obtain if they buy a certain number of funds at the same time.

The first time FINRA received the data, FINRA says it knew the information was “flawed” and notified Oppenheimer immediately.

The second assessment also contained “obvious deficiencies,” says FINRA. Linked accounts were not identified, ineligible transactions were included, overcharged trades were not properly identified, and correct discount information was left out.

When a broker-dealer engages in inappropriate actions, investors, unfortunately, can incur financial losses. The best chance an investor has of recouping their lost investment(s) is to retain the services of an experienced stockbroker fraud lawyer who can help you.

Contact Shepherd Smith and Edwards today and ask for your free consultation with one of our experienced stockbroker fraud attorneys.

Related Web Resources:

FINRA Fines Oppenheimer $1 Million, Associated Press/Forbes, October 30, 2007

Oppenheimer & Co Inc.

Mutual Fund Breakpoints: A Break Worth Taking, FINRA, January 14, 2003

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Posted In: FINRA , Oppenheimer

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October 12, 2007

Oppenheimer, Morgan Stanley, Nomura Securities, and A.G. Edwards Traders Face SEC Charges of Stealing Stock Loan Kickbacks Worth $12 Million Plus

38 stock loan traders from A.G. Edwards, Morgan Stanley, Oppenheimer, and Nomura Securities are accused of stealing over $12 Million in stock loan kickbacks from their Wall Street firms. The Securities and Exchange Commission has charged the employees with the more than $12 million theft.

The SEC says that from 1998-2006, the traders worked with fake stock loan finders to skim profits from their employers through finder fees as well as cash kickbacks from finders. The stock loan traders conducted actual, legal stock loans but logged that the transactions involved finders, so there would be finder’s fees.

The finders were usually friends or relatives of the traders who were in charge of illegitimate “shell companies” that were not even a part of the stock loan business. The “finder” would then pay traders with kickbacks. The more sophisticated scams involved traders using their kickbacks to pay the other traders who had pushed through the loan transactions.

21 stock shell companies/stock loan finders (including a perfume salesman, a mailman, a dental receptionist, and a pharmacist) and 17 former and current stock loan traders now face SEC charges. The SEC says a few of these illegal operations took place in bars and restaurants throughout New York City where participants passed around payments worth thousands of dollars. The money was wrapped in newspapers or in envelopes.

In one case, two stock loan traders from Morgan Stanley are accused of stealing $1 million in undisclosed kickbacks from a shell company run by one of the trader’s relatives.

Federal prosecutors have filed charges of criminal fraud and conspiracy against 5 of the stock loan traders. 10 people have pled guilty in the case.

If you are an investor that has lost money because a member of the securities industry engaged in illegal activities, you should contact Shepherd Smith and Edwards today. We have helped thousands of people recover their financial losses. One of our experienced securities litigation attorneys would be happy to speak with you.

Related Web Resources:

US SEC charges 38 traders in stock loan scheme, Reuters, September 20, 2007

SEC Charges 38 Defendants in Multi-Million Dollar Stock Loan Scams, SEC.gov, September 20, 2007

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Posted In: AIG SunAmerica , Morgan Stanley , Nomura Securities , Oppenheimer , SEC Enforcement

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July 10, 2007

Oppenheimer Fined $1 Million for Abuse of Widow – Later Told She “Only Had Herself to Blame”

Massachusetts securities regulators fined Oppenheimer & Company, Inc. a million dollars for failing to supervise its representatives and ordered the company to also pay $135,000 to the victim, the difference between the losses she sustained and the amount Oppenheimer earlier paid her.

Oppenheimer was charged with failing to supervise a broker as he allegedly engaged in acts including theft, fraud, churning and unauthorized trading in the account of an elderly couple. The firm consented to the order without admitting or denying the claims. The broker is currently under indictment for securities fraud.

After her husband died, personnel at the elderly woman's bank raised concerns over the activity which had occurred in the couple's brokerage account. The widow approached Oppenheimer and claims were ultimately filed in arbitration. Oppenheimer then responded by saying she “only has herself to blame for any losses or other injury she may have suffered.” The arbitration claims were later resolved with Oppenheimer paying less than was lost.

The Massachusetts Consent Order states that Oppenheimer failed to reasonably supervise the broker whose trading was excessive based on the couple’s age, objectives, risk tolerance, financial condition, financial sophistication and personal health. It adds that Oppenheimer’s branch manager repeatedly reviewed and approved the activity and that inadequate action was undertaken by the compliance department.

Further action will apparently also be taken against Oppenheimer for stating that it had provided the regulators with all relevant e-mails during the investigation, which the regulators claim is false.

Shepherd Smith and Edwards represents individuals and institutions with claims against investment firms. If you or your firm are the victim of misconduct by members of the securities industry, hiring an experienced law firm can increase your chances of recovery. Contact us to arrange a free consultation with one of our attorneys.

Related Web Resources:

Massachusetts Securities Division's Consent Order against Oppenheimer & Company, Inc.

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