Ameriprise Financial Advises Clients to Sell OppenheimerFunds Muni Bond Funds with Puerto Rico Debt

According to, in the wake of Puerto Rico’s default on July 1 of $911 million of bond payments it owes creditors—including $779 million of general obligation bonds—Ameriprise Financial Inc. (AMP) is recommending that clients sell their OppenheimerFunds (OPY) municipal bond funds that are holding any of the island’s debt. In a report this week, Ameriprise senior research analyst Jeffrey Lindell said that with the acceleration of Puerto Rico bond defaults—as the island tries to lower its $70 billion debt via bondholder losses—mutual funds holding these bonds could end up having to “cut dividend rates.” He also wrote that as Puerto Rico bonds respond to “speculation and news,” the mutual funds’ net asset value could turn “volatile.”

In its recent article, Bloomberg provided data from Morningstar Inc., which reports that as of the end of March, Oppenheimer held $3.5 billion of Puerto Rico securities in 19 funds, which is more than anyone else. Now, Ameriprise wants clients to look at investment options that are not as risky as the funds holding Puerto Rico municipal bonds. The firm is suggesting that clients sell investments involving 16 Oppenheimer muni funds. Included in the recommendation to sell are a number of state specific municipal bond funds, including the:
· Oppenheimer Rochester Virginia Municipal (ORVAX)
· Oppenheimer Rochester Pennsylvania Municipal (OVPAX)
· Oppenheimer Rochester Maryland Municipal (ORMDX)
· Oppenheimer Rochester North Carolina Municipal (OPNCX) and
· Oppenheimer Rochester Arizona Municipal (ORAZX)

Several days after the July 1 default, credit rating agency Standard & Poor’s (SP) reduced the U.S. territory’s credit rating to “default” status. The default was not the first time Puerto Rico was unable to cover debt payments that were due—although it was the first default involving Puerto Rico’s general obligation debt, which was supposed to have a constitutional guarantee.

It was in May that NY City Council Speaker Melissa Mark-Viverito asked the SEC to investigate whether OppenheimerFunds played a part in causing Puerto Rico’s financial crisis to worsen. Mark-Viverito believes that banks, hedge funds, and other investors who bought into Puerto Rico utility debt and general obligation bonds contributed to the territory’s debt woes.

She said OppenheimerFunds increased its investments in Puerto Rico debt by $500 million over a several-month period. Meantime, according to Bloomberg, as the financial firm’s 20 municipal mutual funds have seen a decline of approximately $1 billion, OppenheimerFunds sought to meet investor redemptions by selling non-Puerto Rico bonds, thereby raising the percentage of what it has allocated in Puerto Rico.

Mark-Viverto was not the only one asking the SEC to conduct a probe into Oppenheimer Funds Inc. and its involvement in Puerto Rican bond holdings. The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) also pressed the regulator to look at whether the financial firm and Franklin Templeton Resources properly valued their bond holdings as the financial situation grew worse on the island.

Last month, seven Democratic US Senators wrote a letter to the Commission asking them to investigate whether there was possible misconduct related to Puerto Rico bonds that contributed to the territory accruing so much debt. For the last three years, our Puerto Rico bond attorneys and Puerto Rico bond fund fraud lawyers have been helping investors recoup their losses sustained because brokerage firms such as Banco Popular, Banco Santander (SAN) and UBS Puerto Rico (UBS-PR) recommended investors buy large percentages of Puerto Rico bonds or, even, each firms’ own proprietary Puerto Rico bond funds. Many investors were encouraged to invest more than they could afford and were not apprised of the risks. A lot of investors lost everything. Contact Shepherd Smith Edwards and Kantas, LTD LLP today for a free, no obligation consultation.

Sell Oppenheimer Funds on Puerto Rico Risk, Ameriprise Says, Bloomberg, July 19, 2016

S & P cuts Puerto Rico rating to default, MSN/AFP, July 7, 2016

AFL-CIO Wants SEC to Probe Firms Invested in Puerto Rico Bonds, Morning Consult, May 23, 2016
NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis, Stockbroker Fraud Blog, May 9, 2016

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