Oppenheimer Core Bond Funds
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Oppenheimer Core Bond Funds, Securities Settlement
The lawsuit settled for $36,333,000 in cash. The following is a summary of the proceedings in this lawsuit: ”OppenheimerFunds Distributor, Inc. (collectively, Respondents) and issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Section 15(b)(4) of the Securities Exchange Act of 1934, Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order). Securities Act Rel. No. 9329 (June 6, 2012). The Order found that Respondents violated federal securities law by providing a misleading prospectus and making misleading statements in the midst of the Oppenheimer Champion Income Fund (Champion) and Oppenheimer Core Bond Fund (collectively, the Funds) steep declines in value. As found in the Order, prior to and during the height of the 2008 financial crisis, Respondents misled investors regarding the Funds. Specifically, between January 28, 2008 and December 31, 2008, OppenheimerFunds, Inc. failed to adequately disclose in Champion prospectus the Fund practice of assuming substantial leverage through its use of derivatives, which was the primary driver of the Fund nearly 80% NAV decline in 2008. In addition, between mid-November 2008 and the end of the year, Respondents made a series of misleading statements about the Funds current circumstances and prospects for recovering lost value. Put simply, unprecedented declines in the CMBS market were triggering massive cash liabilities for the Funds on derivative instruments tied to the CMBS market, forcing the Funds to sell portfolio securities at a loss to meet those cash obligations, and requiring the Funds managers to shed CMBS exposure to reduce the risk of further catastrophe. Instead of communicating these facts to investors, OppenheimerFunds, Inc., in a variety of contexts, communicated that the Funds had suffered mere paper losses on their investments and that, absent actual CMBS defaults, they could recover those losses when markets returned to normal. Pursuant to the Order, OppenheimerFunds, Inc. paid disgorgement, pre-judgment interest and a civil monetary penalty of approximately $35,366,000 to the Commission (the Fair Fund). The Commission has custody of the Fair Fund. On February 5, 2014, the Distribution Plan was approved by the Commission. Pursuant to the Distribution Plan, investors who held Eligible Champion Securities or Eligible Core Securities during the Recovery Period and suffered a loss, as provided in the Distribution Plan, may be entitled to receive a distribution from the Distribution Fund. The Distribution Fund will first be used to compensate injured investors for their share of the advisory fees that the Funds paid to the Respondents. If any money remains in the Distribution Fund, investors will then be compensated on a pro rata basis for any additional decline in value, adjusted to account for market-related declines that took place during the relevant period in the Order, caused by Respondents misconduct.’