OppenheimerFunds on Thursday said it has agreed to pay $89.5 million to settle six lawsuits by municipal bond fund investors who said they suffered unexpectedly large losses during the 2008 financial crisis because their money was invested improperly.
Shareholders accused OppenheimerFunds, a New York-based unit of Massachusetts Mutual Life Insurance Co, of misleading them about the safety of six funds, ignoring the funds' stated objectives and risk guidelines, and inflating asset values.
Shareholders said the losses were exacerbated because of the funds' failure to follow their rules, leaving them vulnerable to a credit crisis. They said this was "not an unforeseeable risk" in light of crises caused by the Mexican peso devaluation in 1994, Asian financial strains in 1997, a Russian bond default in 1998, and the Sept. 11, 2001, attacks.
Municipal bond funds invest in debt issued by states, counties and municipalities, with income exempt from federal taxes and sometimes state taxes.
In entering a memorandum of understanding with shareholders of the six funds, OppenheimerFunds did not admit wrongdoing, and said it has maintained that the investments were consistent with the funds' stated objectives and policies.
The accord requires completion of a final settlement that allocates the $89.5 million among fund shareholders, as well as approval by U.S. District Judge John Kane in Denver.
"The result is a good one for the investors in these six funds," said Steven Toll, a partner at Cohen Milstein Sellers & Toll who represents some of the settling shareholders.
Sanford Dumain, a partner at the Milberg law firm representing other fund shareholders, said: "It's a case with a lot of complex issues, and we are gratified that we can obtain compensation for members of the class."
The six funds were: AMT-Free Municipals, Rochester Fund Municipals, Rochester AMT-Free New York Municipal, New Jersey Municipal, Pennsylvania Municipal and Rochester National Municipals.
The settlement does not resolve a related lawsuit over Oppenheimer's California Municipal fund.
Rochester National specialized in high-yield securities, and remains one of the biggest funds in its class, with about $5.7 billion of assets as of July 31.
The other five funds were designed to preserve shareholder principal by investing in high-quality securities.
According to Morningstar Inc, the six funds' Class A shares fell between 29 percent and 48.9 percent in 2008, ranking near the bottom of their respective categories.
In June 2012, OppenheimerFunds agreed without admitting wrongdoing to pay $35.4 million to settle U.S. Securities and Exchange Commission charges that it misled investors about two taxable bond funds that also suffered large losses in 2008.
As of March 31, OppenheimerFunds managed more than $208 billion for more than 12 million accounts.
The case is In re: Oppenheimer Rochester Funds Group Securities Litigation, U.S. District Court, District of Colorado, No. 09-md-02063.
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