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Wednesday, December 23, 2009 4:05 PM

Oppenheimer College Fund Fraud Investigation

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In response to Oppenheimer's College Fund Loses 38% Using Borrowed Money To Buy Mortgage-Linked Securities I received a helpful email link pointing to a law firm investigating Oppenheimer fraud.

Please consider Investigation Results into Oppenheimer Fund Fraud.

We have completed our investigation into the Oppenheimer Champion Income Fund (OCHBX, OPCHX and OCHCX) and the Oppenheimer Core Bond Fund (OPIGX) Fund and plan on filing FINRA arbitration lawsuits to recover investment losses in the Funds for fraud and the failure to disclose the material risks of the Fund. Unknown to most clients, the Funds were defacto hedge funds, investing in extraordinarily risky derivatives that were highly illiquid.

Unfortunately, in the solicitation of the Funds, these risks were not made known to investors. According to the findings of our investigation, the Funds were pitched to investors either as a conservative high income fund (Champion) or conservative intermediate fund (Core) or at least a high income or intermediate funds that were not dramatically riskier than the high income/intermediate fund peer group.

According to our investigation, investors at major brokerage firms like Wachovia, Merrill Lynch, Linsco Private Ledger LPL, Citigroup Smith Barney, ING, UBS, Gunn Allen and Stifel were not informed of the true risks of the Fund. As a result, many investors who thought they were receiving a high income fund with the standard risks associated with it instead have suffered losses of approximately 80% in 2008 and 35% in the Core Bond Fund. The Champion Fund dropped a stunning 55% in November of 2008 alone. For calendar year 2008, Champion Income has lost 79.1%, a record eclipsed only by a high income fund of southern based Regions.


Summary of Wrongdoing: Undisclosed Bets In High Risk Derivatives

The Fund took a massive bet in high risk derivatives in the form of mortgage backed securities and credit default swaps. The full risks of the Fund’s illiquid, speculative derivatives were not meaningfully disclosed to investors. The Champion Income Fund was portrayed as a garden variety high income fund. Unfortunately, starting in late 2006, Angelo Manioudakis, the 42 year old head of the firm's Core Plus team responsible for managing the Fund, concentrated the Fund in total-return swaps.

These are highly illiquid, speculative and complex agreements between parties to exchange cash flows in the future based on how a set of securities performs. Specifically, the Fund was betting that top-rated commercial mortgage-backed securities would rally in 2008. The Fund gambled, and lost, with money for investors that was not supposed to be gambled with.

Additionally, the Fund was also concentrated in credit-default swaps (CDSs). The CDSs declined $238 million through September alone. CDSs are basically insurance contracts that protect investors against bond and loan defaults. In exchange for being on the hook to pay out for such issues, CDS sellers receive a stream of interest payments.

According to our findings, the Champion Income Fund also increased its gamble, in effect doubling down, on falling mortgage related bonds in 2008. For example, mortgage securities tied to Washington Mutual Inc. with a $9 million principal value were valued at only $3 million at the end of September 2008. A set of five Freddie Mac mortgage-backed securities with a combined principal amount of $20 million were valued at just $2.5 million. As defaults continued to rise, the mortgage related holdings plummeted. While this sort of sector bet might be appropriate for a sector fund or hedge fund, the Champion Income Fund was not meant to be a sector or hedge fund. Many conservative clients have been financially devastated.


To determine if some or all of the investment losses in the Champion Income Fund are recoverable through a FINRA securities arbitration lawsuit, please contact Stoltmann Law Offices in Chicago. We work on a contingency fee basis for investors across the U.S.
Seek Legal Representation

I spoke with an attorney at Stoltmann Law offices and they are still accepting clients. Only the state of Illinois "Bright Start" program and a similar program in Oregon have settled.

I have no stake in this matter, except to see justice served.

If you have been harmed, it may be in your best interest to contact Andrew Stoltmann at the Stoltmann Law Offices. A phone number and email address is available in the above link.


I removed some text and performance charts above because they were from the wrong Oppenheimer Core Bond Fund.

For details, please see Oppenheimer: There are Two Unrelated "Oppenheimer" Funds with the same "Fixed Income Core" name.

The disastrous results and the lawsuit above are in relation to OppenheimerFunds which bills itself as "The Right Way To Invest".

Oppenheimer Investment Management (OIM) offers a Fixed Income Core Plus strategy that had positive results. OIM is not related to OppenheimerFunds.

Mike "Mish" Shedlock
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