Leigh Ann Reusche is with her daughter Nadya, 19, at the law offices of Andrew Stoltman.
Updated: May 3, 2013 12:15PM
There is bright news for the thousands of parents who invested college savings money in Illinois' Bright Start Savings Plan. In January, this column revealed that one of the fund managers within the Bright Start plan had made unauthorized trades that cost investors in its most conservative fund $85 million.
Now, after months of negotiations with Oppenheimer, the fund management company, the state has a tentative agreement to recover $77 million for fund investors -- which would be a remarkably high recovery for a negotiated settlement. The amount that will be returned to each affected account will depend on a complicated formula that is still being negotiated.
State Treasurer Alexi Giannoulias and Illinois Attorney General Lisa Madigan have been working for months to craft a deal with OppenheimerFunds Inc. Negotiations have been kept secret and were complicated by the fact that several other states also used this same fund for their college savings plans, with Illinois taking the lead in negotiations.
However, Giannoulias' office has confirmed that the state has reached a "tentative, handshake deal" that would return $77 million to fund investors.
The losses came as a result of speculative derivative bets made by a rogue trader at Oppenheimer, the fund manager. They caused the conservative "Core Plus" bond fund to lose 38 percent of its value, at a time when similar funds actually showed slight gains. That fund had been designed to invest in conservative U.S. government securities, so it would be the safest alternative for parents who wanted to limit risk as their children approached college age. The fund manager was fired last fall.
Giannoulias' office was reluctant to confirm the pending arrangement, since final details have not been worked out and some negotiations remain ongoing.
However, late last week, one family that invested in the college fund, Tom and Leigh Ann Reusche, filed an arbitration claim directly against Oppenheimer -- a process required for dispute resolution over investment claims of this type.
The treasurer's office said it was "concerned" that the filing of individual claims could scuttle the deal, which would apply to all investors. Anyone filing an individual claim would not be part of the settlement, but an avalanche of individual claims could rupture the fragile agreement.
Pressed for details, Giannoulias would say only: "Our goal is to get the money back into the accounts as soon as possible, since families who suffered losses need money to cover college costs now."