Compliance February 13, 2009

OppenheimerFunds Hit with Bond Fund Lawsuit

A San Diego law firm has filed a federal court lawsuit against OppenheimerFunds over allegations fund managers concealed the fact that they had moved the Oppenheimer Champion Income Fund into highly leveraged risky derivative instruments, including mortgage-backed bonds.
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A news release from Coughlin Stoia Geller Rudman & Robbins LLP said its lawsuit seeks to represent shareholders in the fund between January 26, 2007 and December 9, 2008.

The complaint charges that investors unknowingly purchased shares in what they thought was a high-yield bond fund but, by late 2006, the fund had begun moving into positions with significantly more risk including purchases of “highly unstable” mortgage-backed and corporate bonds. Fund managers kept secret the fact that the risk profile of the fund had risen dramatically, the suit charges.

According to the suit, Champion Fund shares declined in tandem with other high-yield fund shares as the credit crunch exposed the poor underlying fundamentals of the financial sector’s mortgage risk management and problems with structured finance vehicles starting in July 2008.

Then, the plaintiffs allege, beginning in mid-September 2008 with the collapse of Lehman Brothers Holdings Inc. and American International Group, Inc., and continuing through December 2008, the Oppenheimer offering began to acknowledge the “serious deterioration” in its holdings. As a result, the share price “collapsed.”

More information about the lawsuit is available here.

Compliance February 13, 2009

North Carolina AG Seeks Information about BoA Bonuses

The attorney general of North Carolina is seeking justification for the bonuses being paid to executives at the Charlotte-based Bank of America (BoA).
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According to a Reuters news report, Attorney General Roy Cooper said that, in light of the fact that BoA has received $45 billion of taxpayer money in the last four months, the bank should not be paying out bonuses to its employees. He said the bank must justify why the bonuses, due to be paid to executives Sunday, are being made.

Further, the report said that the attorney general is investigating the timing and scope of 2008 bonuses paid by Merrill Lynch, which was acquired by BoA on January 1.

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Bank of America spokesman Scott Silvestri told Reuters that the bank is cooperating with the attorney general and that the bonuses paid to associates, which are down by more than 60% over 2007, are based on the $4 billion the bank made in profit during 2008. Silvestri noted that CEO Kenneth Lewis and other top executives are not receiving bonuses, and executives on the next rung are seeing bonus payouts cut by 80%, Reuters said.

“I am appalled that 2008 bonuses would be distributed, given the current circumstances,” Cooper said in a Feb. 12 letter to the largest U.S. bank, according to Reuters. “I expect an explanation from the board as to the appropriateness of any bonuses while public money is being provided to the bank.”

New York Attorney General Andrew Cuomo is also investigating the Merrill bonuses (see “Probe of Merrill Bonuses Continues’ and “Thain Receives Subpoena in Merrill Bonuses Probe’).

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