Oppenheimer & Co. Background Information
Oppenheimer & Company is the brokerage subsidiary of Oppenheimer Holdings, Inc. a Canadian Company. Its history is confused by its name. The present company was founded in 1977 as Goldale Investments Ltd., later changed to E. A. Viner Holdings Ltd., then Fahnestock Viner Holdings, Inc. before becoming Oppenheimer.
The company traces its roots to E. A. Fahnestock who, it claims, was a financial advisor to Abraham Lincoln before forming an investment firm bearing his name in 1881. The firm remained independent for more than 100 years before being purchased by Viner Holdings in 1988.
Meanwhile, Oppenheimer & Company was a brokerage firm founded in the early 1950’s, which later formed a mutual fund and an institutional advisory division. In 1982, the firm was bought by bought by British firm, but three years later Oppenheimer’s management bought the firm. The mutual fund division was sold separately and, after ownership changes, the Oppenheimer mutual funds are now run by Massachusetts Mutual Life Insurance Company and have no connection to the brokerage firm.
In 1997, the Oppenheimer management partners made a hefty profit by first selling the advisory firm, then selling the brokerage operation to Canadian Imperial Bank of Commerce (CIBC) for over a half-billion dollars. The name was changed to CIBC Oppenheimer and it was merged with Wood Gundy, another U.S. investment firm the bank purchased. Bad investments, mismanagement and scandal soon hit CIBC resulting in large losses. Thus, in 2003 it sold the Oppenheimer operation to Fahnestock Viner Holdings for about $300 million. Fahnestock decided to use the name Oppenheimer.
Oppenheimer Holdings, Inc. is listed on the New York Stock Exchange and claims almost 3,000 total employees in regional offices throughout North andSouth America. It has market capitalization of approximately $750 million, and reports annual revenues about the same amount, with earnings of $44 million.
In July 2007, Oppenheimer & Co. was fined a million dollars by Massachusetts regulators for claims of supervisory failures as a widow and her dying husband were being victimized by an Oppenheimer broker. The firm also paid more than a million to the widow, including an earlier settlement.
Oppenheimer was charged with failing to supervise its broker as that broker allegedly engaged in theft, fraud, churning and unauthorized trading in the account of an elderly couple. The firm consented to the order without admitting or denying the claims. The broker is currently under indictment for securities fraud.
Yet, abuse of the widow reportedly did not end with Oppenheimer’s failure to supervise. After personnel at her bank persuaded the widow to go to Oppenheimer’s management, the firm apparently minimized the problem, which included $350,000 in forged checks, and allowed to broker remain at the firm for a year until he resigned. During the investigation, Oppenheimer was also accused of making “false and misleading” statements and withholding emails from the state regulators.
Meanwhile, to recover her losses, the widow hired an attorney to file claims in arbitration, which were later for less than was lost, but the state required Oppenheimer to pay her the difference. In its answer to the arbitration claims Oppenheimer responded that she “only has herself to blame for any losses or other injury she may have suffered.”
“I guess the message is that anybody stupid enough to invest with Oppenheimer & Co. gets what they deserve,” said Massachusetts’ head regulator. “That’s the only way to read a statement like that.”
CIBC and its world markets division agreed to pay $125 million to resolve charges by regulators in its role in a widespread scandal involving after hours trades in shares of mutual funds. The firm paid $25 million in fines to the SEC and NY Attorney General’s Office and made $100 million available to reimburse victims, including other owners of the mutual fund shares. The bank neither admitted nor denied the allegations.
“By knowingly financing customers’ late trading and market timing, as well as providing financing in amounts far greater than the law allows, CIHI and World Markets boosted their customers’ trading profits at the expense of long-term mutual fund shareholders,” said the SEC’s Director of Enforcement.
NY Attorney General Elliott Spitzer exposed the scandal when he arrested a CIBC executive for stealing more than $1 million from mutual funds by participating in the late-trading scheme. The SEC followed with civil charges. This was the first case in what would become one of the largest scandals in the history of Wall Street.
The late trading was accomplished by entering trades in mutual fund shares at that day’s closing price of the funds, but after the market closed. This gave traders the advantage of knowing of events and after-hours trading prices on shares owned by the funds. A billion dollars was reportedly made available to hedge funds, along with the means to make the illegal transactions and disguise these from the fund managers.
During its sale of Oppenheimer, CIBC was fighting Securities and Exchange Commission charges of fraud in its dealings with Enron. Just after the sale, CIBC settled with the SEC paying an $80 million fine. CIBC and others had been charged with helping Enron to defraud its shareholders by falsifying the company’s earnings.
In 2004, Enron shareholders filed civil suits against CIBC and other banking firms claiming these banks assisted Enron to manipulate its earnings. After losing several motions to dismiss, CIBC agreed to settle its part in the case for $2.4 billion. Just prior to going to trial, the case was dismissed on technicalities by an appellate court and is now pending before the U. S. Supreme Court.
Prior to the surfacing of the Enron scandal, with CIBC Oppenheimer center-stage, claims were filed in a New York court alleging that firm had previously assisted another firm to falsify its books and therefore defrauding purchasers of securities of the company.
The complaint alleged that CIBC entered into a transaction with Livent, a theatrical production company. The transaction was purported to be a bona fide purchase by CIBC of production and royalty rights in certain Livent shows, in exchange for a “non-refundable” fee of $4 million. However, a secret side letter contradicted the investment agreement, requiring Livent to repay the $4.6 million within six months, with interest.
Instead of a debt, Livent treated the $4.6 million payment as income on its financial statements, hiding that the proceeds were actually a loan. Meanwhile the firm sold notes to others who say they relied on the company’s falsified financial reports. Livent soon went defunct and the noteholders then sued CIBC.
CIBC moved to dismiss the case, which was denied by the judge. The parties later settled the matter so the allegations were never proved.