OppenheimerFunds risk violations case can proceed, U.S. court says

By Toni Weeks

San Diego, Oct. 25 - A federal court ruled on Monday that shareholders in seven different municipal bond funds consolidated into one case, In re Oppenheimer Rochester Funds Group Securities Litigation, can move ahead with their lawsuit against OppenheimerFunds for alleged federal securities laws violations.

The funds involved in the case include AMT-Free Municipals Fund, AMT-Free New York Municipals Fund, California Municipal Fund, New Jersey Municipal Fund, Pennsylvania Municipal Fund, Rochester Fund Municipals and Rochester National Municipals Fund.

According to a press release by Cohen Milstein Sellers & Toll pllc, shareholders said that Oppenheimer failed to disclose in prospectuses and registration statements that they were taking risks inconsistent with their stated overall conservative strategy and investment objections. The complaints were consolidated in the U.S. District Court of Colorado in June 2009.

As the funds' deviation from their conservative investment strategy became known, the value of their shares declined significantly. For example, when Oppenheimer filed prospectus supplements alerting investors of the liquidity risks of the funds' investments, the net asset value of the shares dropped 30% to 50% in 2008, while similar municipal bonds fell by only 10% to 15% during the same time period.

Judge John L. Kane Jr. of the U.S. District Court, District of Colorado, declined Oppenheimer's argument that mutual funds are exempt from liability under the federal securities laws because declines in the value of those funds are caused by corresponding declines in the values of the funds' investments and are not the result of any statement in the funds' prospectuses.

"Unless and until Congress defines mutual fund offering statements out of the category of registration statements to which the 1933 [Securities] Act applies, I will take the statute's language at face value and consider defendants' loss causation arguments within its confines," Kane said in the release.

A joint status report must be submitted by Nov. 18.

In addition to Cohen Milstein Sellers & Toll pllc, the plaintiffs are represented by co-lead Counsel Milberg LLP, the Sparer Law Group and Berger & Montague, PC.

OppenheimerFunds is an asset management company based in Denver.

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