Oregon officials—stung by steep losses in the Oregon College Savings Plan—are seeking $36.2 million in damages from OppenheimerFunds Inc., which managed a fund responsible for those losses.
The lawsuit filed, in Marion County, Ore., against the Denver-based OppenheimerFunds, includes allegations of negligence, breach of contract, and violations of state securities laws. Officials said in a statement that risky, “hedge-fund like” investments cost the Oppenheimer Core Bond Fund 36 percent of its value last year—and 10 percent more so far this year.
Meanwhile, comparable funds in a benchmark index posted a gain of about 5 percent for 2008, they said.
Oppenheimer officials said the accusations are unfair and lack merit.
James Sinks, a spokesman for state Treasurer Ben Westlund, said about 66,000 accounts were affected. The five-member board that oversees the Oregon College Savings Plan decided in January to withdraw from the bond fund.
“Families were doing the right thing and saving for college,” Mr. Westlund said in a statement, “but unknown to them or Oregon, their money was invested in ways that were plainly inappropriate for those saving for college or already in college.”
Mr. Westlund and Oregon Attorney General John Kroger said Oregon is the first state to take legal action against OppenheimerFunds for losses in college-savings programs.
The company also manages 529 plans for a handful of other states, said Justin Draeger, a vice president of the National Association of Student Financial Aid Administrators, in Washington.
Still, he said, the situation in Oregon shouldn’t discourage families from taking advantage of state college-savings plans.
“Right now, this appears to be isolated; it doesn’t appear to be systemic or widespread,” Mr. Draeger said. “Generally, 529 plans are a great investment vehicle to save for college.”
Education Week Staff Writer Alyson Klein contributed to this column.
A version of this article appeared in the April 22, 2009 edition of Education Week