For Immediate Release - March 11, 2013

Oppenheimer to Pay $2.8 Million to Settle Allegations of Misrepresenting Performance of Fund to Investors

Joint Investigation with the SEC Leads to Nationwide Payments to Investors, New Conduct Standards

BOSTON – Oppenheimer Asset Management Inc. and Oppenheimer Alternative Investment Management, LLC (Oppenheimer) have agreed to pay $2.8 million, resolving allegations that Oppenheimer misled investors about the valuation policies and performance of a private equity fund, Attorney General Martha Coakley announced today. 

As a result of a joint investigation with the Securities and Exchange Commission’s New York Regional Office (SEC), the AG’s Office filed an Assurance of Discontinuance today in Suffolk Superior Court alleging that Oppenheimer disseminated misleading quarterly reports and misleading marketing materials. Those reports allegedly stated that the private equity fund was valued “based on the underlying managers’ estimated values.”  In fact, Oppenheimer’s portfolio manager actually valued the fund’s largest investment significantly higher than the underlying manager’s estimated value, inflating a key fund performance metric from 3.8 percent to nearly 40 percent.

Under the terms of the settlement, Oppenheimer will pay investors nationwide more than $2 million, including approximately $150,000 to the City of Brockton’s pension fund, $200,000 to Quincy’s pension fund, and a statutory penalty of more than $130,000 to Massachusetts. In addition, Oppenheimer must make changes to its valuation policies and internal controls.

“Our office is pleased to be able to recover this money for investors, especially for the Massachusetts cities that were affected,” AG Coakley said.  “We appreciate the cooperation of the SEC in this investigation and will continue to ensure that investors’ rights are protected from unfair and fraudulent practices.” 

The investigation found that from October 2009 to June 2010, Oppenheimer advisers marketed the Oppenheimer Global Resource Private Equity Fund I (OGR) to investors, disseminating material misrepresentations and omissions concerning their valuation policies and performance.  OGR is a fund that invests in other private equity funds, and it was marketed primarily to state entities and endowments as well as high net worth individuals.

According to the materials filed in Suffolk Superior Court, OGR’s largest investment – Cartesian Investors-A LLC – was not valued based on the underlying managers’ estimated values.  Instead, an Oppenheimer employee valued Cartesian at a significant markup to the underlying manager’s estimated value. The change in valuation methodology resulted in an increase in OGR’s performance as measured by its internal rate of return, which is a metric commonly used to compare the profitability of various investments. The portfolio manager’s markup of OGR’s Cartesian investment increased the internal rate of return, raising it from 3.8 percent to almost 40 percent. 

In addition, Oppenheimer allegedly told its investors that the yields it was reporting had been vetted by an independent third party valuation firm, and said that OGR’s underlying funds were audited by independent third party auditors, both of which were not the case.

Oppenheimer’s written policies and procedures were not reasonably designed to ensure that valuations provided to prospective and existing investors were presented in a manner consistent with written representations to investors and prospective investors.  Under the terms of the Assurance of Discontinuance, Oppenheimer is required to appoint an independent compliance consultant who will review Oppenheimer’s internal policies and make changes to ensure that Oppenheimer’s system better prevents the dissemination of deceptive information and misrepresentations in the future.

This case was handled by Legal Analyst Tiffany Bartz, Division Chief Glenn Kaplan, and staff members Sabrina Maynard and Leslie Rogers, all of Attorney General Coakley’s Insurance and Financial Services Division.

###############

Follow us on Twitter – View our Photos – Visit our Website