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State Treasurer Alexi Giannoulias' reluctant confirmatithtentative agreement had been reached with OppenheimerFunds restore funds Bright Start investors' accounts led hopes

State Treasurer Alexi Giannoulias' reluctant confirmation that a tentative agreement had been reached with OppenheimerFunds to restore funds in Bright Start investors' accounts led to hopes that the money would be refunded.

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Updated: May 3, 2013 12:15PM



Q. We need the money in our Bright Start Core Plus account to pay tuition this fall. Will we get our money back?

A. This has been an issue that I have pursued diligently -- and I have never felt so frustrated. In the last three weeks, I have talked with every participant involved.

As many of you remember, one of the Bright Start 529 Plan investment funds -- a conservative fund that was supposed to be invested with the least risk -- lost $85 million in fall 2008. This Core Plus bond fund lost 38 percent of its value because of speculative derivative bets placed by its team of fund managers, one of whom subsequently left the fund company.

When I wrote the story of the fund loss last January, OppenheimerFunds denied that the trades were unauthorized or outside the guidelines of the fund's investment policy. Subsequently, I learned that OppenheimerFunds was negotiating with five states that had included this fund in their 529 plans.

In early June, Illinois Treasurer Alexi Giannoulias reluctantly confirmed that a tentative agreement had been reached with OppenheimerFunds to restore $77 million to Bright Start fund investors' accounts. At the time, the treasurer stressed this was a "handshake deal" with many details to be ironed out. But it led to hopes that the money would be refunded in time for fall tuition to be paid.

For the last month, I have been pressing all concerned to resolve these negotiations -- or at least come to a partial resolution by which those families who need the money for fall tuition payments could receive an advance credit on the proposed settlement. I even suggested that tuition bills be forwarded to OppenheimerFunds, which could issue checks directly to the schools involved.

I reached out to the highest levels at OppenheimerFunds, and at MassMutual, the company that owns OppenheimerFunds. I contacted the state treasurer and the Illinois attorney general.

Everyone I talked to was sympathetic to the plight of the families. And each of them told me this had to be "worked out" by the lawyers. Here is the statement given to me by Donna M. Winn, CEO and president, OFI Private Investments Inc.:

"I want to assure you that you have been heard at OppenheimerFunds. I know you have had several conversations with individuals and executives at our firm, and they have shared the content of those conversations with me and our chief executive, among others. As much as we would like to see a fast resolution, the complexity of dealing with the issues makes it difficult to achieve that. As I said, we want to make sure we have the right resolution, and that will take some time. Because of the nature of our discussions, I am not at liberty to go into any more detail than that at this point, but it is fair to say that these types of matters typically take some time to resolve, even where the parties are working cooperatively and diligently together, as we are in this case with the five states. We are in continuing discussions even as I write this."

When I contacted MassMutual, a company known for its social responsibility, and asked them how they could allow their OppenheimerFunds subsidiary to drag on this process while students and families are left hanging, I received this response: "We are certainly aware of this matter, but decisions about the Bright Start plan are made by Illinois state officials and OppenheimerFunds, and therefore they are the appropriate sources for all relevant information."

Once again, in print, I ask all of these executives, lawyers and elected officials how they can sleep at night knowing that the delay will directly affect the lives of many students -- either those who will not be able to start college this fall, or those who may not be able to return to class.

This is the worst case of bureaucratic denial that I have ever seen. First they LOST the bucks -- $85 million of them. And now they keep "passing the buck." But it does not appear they will pass the bucks to the families who trusted them with college accounts in time to pay tuition this fall. And that's the sad, Savage Truth.

Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.HOW YOU CAN PICK TERRY'S BRAIN

To celebrate the 20th anniversary of my Chicago Sun-Times column, I'll be responding to your most frequently asked questions on a regular basis. Of course, you always can submit individual questions on my Sun-Times blog reached on the home page at TerrySavage.com.



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