Tom and Leigh Ann Reusche of Elburn wanted to be sure their four children had a bright future ahead of them, so the couple invested in Bright Start, an education savings program created and administered by the state of Illinois.
Being responsible with their money, they chose the most conservative option and invested $50,000 initially for each of their children in the "Core Plus" bond.
"We were always savers because we valued and wanted a college education for our children, as our parents had done for us," the couple told the Sun-Times.
By January 2008, the Reusches had gathered up over $500,000. However, when they checked their 2008 year-end statement, their balance only read about $300,000.
At the time, there was no obvious reason why the fund decreased by over 40 percent, as it was safe from any drops in the stock market.
Leigh Ann Reusche did some research and tried to contact Bright Start, but she received little to no help.
Last week, the Reusches filed an arbitration claim.
In the meantime, State Treasurer Alexi Giannoulias and Attorney General Lisa Madigan had initiated an investigation earlier this year. They discovered that a rogue trader at Oppenheimer Funds, the "Core Plus" bond fund management company, made unsound bets, causing the fund to lose 38 percent of its value. Other similar funds actually earned gains.
The trader has since been fired.
For several months, Giannoulias and Madigan worked together with Oppenheimer to find a way to recover the lost money. According to the Sun-Times, "Now... the state has a tentative agreement to recover $77 million for fund investors... The amount that will be returned to each affected account will depend on a complicated formula that is still being negotiated."
But what does this mean for the Reusches? If the couple sticks with their claim, they would not be part of the state's settlement.
Andrew Stoltman, an attorney and investor advocate who created recover529losses.com, said, "Nine out of ten times, the ultimate recoveries by a state are much smaller than what I can settle for with my individual clients... If the state recovers all the money, I'd recommend [Leigh Ann] take the settlement. But if they can't get back all the money that was lost, then I'm going after them."
Final details of the settlement have not yet been worked out, and negotiations are ongoing.
"Our goal is to get the money back into the accounts as soon as possible," said Giannoulias, "since families who suffered losses need money to cover college costs now."
Matt Bartosik is the editor of Off the Rocks' next issue and a "between blogs" blogger.