OppenheimerFunds Inc. has agreed to pay almost $51 million to settle litigation that it invested in junk bonds and risky derivatives despite claiming to focus on investment-grade municipal bonds. This ends long-running multidistrict litigation (MDL) after a separate $90 million settlement and an appeal has to the Tenth Circuit Court of Appeals. A Colorado federal judge has preliminary approved the “all-cash deal,” which would resolve claims brought by investors in Oppenheimer’s California municipal bond fund. These investors were the only Plaintiffs in the case not to join the $90 million settlement agreed to in 2013. The $50.75 million settlement is estimated to provide class members an average recovery of 24 cents per purchased share.
Five groups of Plaintiffs filed motions in 2009 to have their cases consolidated with a subclass of investors suing over the Oppenheimer AMT-Free New York Municipals fund. The suits, later joined by two other groups of investors, all alleged that Oppenheimer said it would invest the majority of the funds’ money in investment-grade municipal bonds, but actually invested much of it in low-rated junk bonds and derivatives.
Although the suits in the MDL targeted different mutual funds, the U.S. Judicial Panel on Multidistrict Litigation consolidated them in 2009, finding that all the funds involved municipal bonds and were administered by some of the same executives. Oppenheimer settled with investors in six of the funds in 2013, but the California Municipal Fund’s suit was kept intact. U.S. District Judge John L. Kane earlier granted certification to the California class, but the Tenth Circuit Court of Appeals reversed the ruling and remanded the case for a more “rigorous analysis” under the U.S. Supreme Court’s “Omnicare” decision. Judge Kane again granted the California class certification in October 2015, finding that the class was suitable for certification even under the new case law.
Oppenheimer then appealed that ruling to the Tenth Circuit, saying class certification would be a “death knell” that forced it into settlement because of the size of the suit’s potential damages. But the appellate court rejected that argument in December 2015, denying Oppenheimer’s petition for permission to appeal the certification ruling.