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Oppenheimer to Pay $2.8 Million to Settle Allegations of Misrepresenti Page 1
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MARTHA COAKLEY por immediate Release - March 11, 2013
ATTORNEY GENERAL
Media Contact
Jillian Fennimore
(617) 727-2543
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 1 (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 intemal
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 intemal 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 Coakle/s Insurance and Financial Services Division.
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