Mutual fund icon, company settle probes into improper trading for $175 million

Thursday, May 20th 2004, 11:59 am

By: News On 6

ALBANY, N.Y. (AP) _ Former mutual fund mogul Richard Strong will leave the financial industry, and he and his company agreed Thursday to pay $175 million to settle allegations that he engaged in improper trading.

Strong, who was accused of personally making $1.8 million, also apologized, saying he was ``deeply sorry.''

Strong _ who owns 85 percent of Strong Financial Corp. but resigned in December as its chairman, CEO and chief investment officer _ was the highest level executive to settle a trading case, state Attorney General Eliot Spitzer said.

The fund company, based in Menomonee Falls, Wis., has been under investigation by federal and state regulators since last fall.

The company said Strong used his position to make improper trades of funds in his personal accounts as well as those of friends and family at the expense of ordinary investors.

Under the settlements with New York, Wisconsin and the Securities and Exchange Commission, Strong will pay $60 million, and the company will pay $80 million. Fees to Strong shareholders will be reduced by 6 percent for five years, a cut valued at $35 million.

Strong's stature led regulators to insist on the large fine, Spitzer said.

``You can't get any higher than the fellow who is CEO and chairman of the board, and that's why his behavior has always struck as that much more egregious,'' Spitzer said.

Spitzer said Strong was engaging in market timing for personal gain even as the company warned its investors that they could be barred for the practice.

Spitzer also said another high-level Strong executive had arranged for Canary Capital Partners to market-time funds managed by the Strong firm to lure Canary's other lucrative business.

Market timing _ a type of rapid, in-and-out trading that can skim profits from long-term shareholders _ is legal, but many mutual fund companies discourage it.

Strong apologized in a statement.

``Throughout my career, I have considered it to be my sacred duty to protect my investors; and yet in a particular and persistent way I let them down,'' Strong wrote. ``In previous years, I frequently traded the shares of the Strong funds, at the same time that the advice which we gave our investors was to do the opposite and to hold their shares for the long term.

``My personal behavior in this regard was wrong and at odds with the obligations I owed my shareholders, and for this I am deeply sorry.''

Strong executive Anthony D'Amato and Thomas Hooker, former Strong director of compliance, will also accept lifetime bars from the industry, Spitzer said.

The deal also sets new standards for board independence and accountability at the mutual fund company and preserves jobs.

``Investors in Strong funds did not always get treated equally and fairly as they had the right to expect,'' said Wisconsin Attorney General Peg Lautenschlager. ``The settlement also ensures worthwhile reforms, while giving the company a positive opportunity to address its future.''

Investors have pulled more than $3 billion in assets from the company since the investigation began.