OppenheimerFunds Inc., a company majority owned by Massachusetts Mutual Life Insurance Co., is under scrutiny in five states for investment losses in college savings accounts that used its bond funds.
Last month officials in Illinois, Maine, New Mexico, Oregon and Texas began jointly exploring whether OppenheimerFunds violated its fiduciary duty to investors in the 529 college savings plans, according to Scott Burnham, a spokesman for Illinois Treasurer Alexi Giannoulias.
Investors lost $85 million last year in Illinois-sponsored accounts run by the firm, whose managers bought mortgage-linked securities before their prices plunged along with the market for residential real estate.
The other states have not estimated their losses.
The joint investigation is intended to determine the extent of the losses.
Illinois, Oregon and Texas have pulled college savings money from OppenheimerFunds, and Oregon is seeking bids to replace the company as a manager.
The inquiry is focusing on accounts that invested in the Oppenheimer Champion Income Fund, which fell 79% in the past year, and the Oppenheimer Core Bond Fund, which lost 41%.
The Oppenheimer Limited Term Government and U.S. Government Trust funds are also being investigated.
Jeaneen Pisarra, a spokeswoman for OppenheimerFunds, would not discuss the investigation or possible litigation Tuesday, except to say: "OppenheimerFunds maintains that it acted appropriately in managing the funds for which it serves as investment adviser.
"Unprecedented market volatility and lack of liquidity in the second half of 2008 led to poor performance of the Core Bond Fund."
Angelo Manioudakis, the manager who oversaw the bets at the four funds, left OppenheimerFunds in December; other managers have since been chosen to run them.
The Champion Income Fund held total-return swaps that bet the prices of mortgage-backed securities would rise.
Instead, they dropped in November. The fund plunged 71% in the fourth quarter, including 54% in November alone.
Shareholders who invested in the fund outside of college savings plans have filed a lawsuit and arbitration claims against OppenheimerFunds.
The suit, filed in February in the U.S. District Court for Colorado, alleges that OppenheimerFunds marketed and sold the fund as a conservative high-income opportunity.
