Details Emerge in Strong Settlement Talks

May 18, 2004 ( - As settlement talks between Strong Financial Corp. and regulators heat up, word comes down that investors in Wisconsin's college savings program are retreating from Strong fund offerings.

Following up on Monday’s Wall Street Journal report that Strong and regulators could reach a settlement by the end of this week, Tuesday the Milwaukee Journal Sentinel says the settlement could exceed $100 million dollars.   In addition to a monetary settlement, talks include the possibility that Richard Strong, the firm’s founder and former chairman, would not face criminal charges, but would be banned for life from the securities industry.

The Journal Sentinel though adds a caveat.   Citing people familiar with the matter, the paper says the talks are “up and down and changing hourly.”  

Talks of a settlement come after New York Attorney General Eliot Spitzer filed charges alleging Strong used his fund company to personally profit at the expense of his investors.  To support this contention, trading records subpoenaed by Spitzer’s office show a five-year period ending in 2002 suggesting that Strong made at least $600,000 for himself and friends and family by engaging in rapid, market-timed trading (See Spitzer Looking at “Strong” Arming Mutual Fund Head ).  These charges eventually led to Strong’s departure from all company posts he held.

News of a possible settlement was joined by an Associated Press report that found approximately 10,000 investors in Wisconsin’s college savings program, EdVest, have pulled their money out of funds offered by the Menominee Falls, Wisconsin -based Strong.   This comes after Strong previously lost its exclusivity deal on its home-state college savings plan in Wisconsin and now has to compete with two other fund companies for that money, including the Vanguard Group.

The EdVest defections join investors in a wide range of Strong investment vehicles.   Ever since news of the market timing allegations at Strong emerged in October, investors havepulled out an estimated $4.3 billion from Strong mutual funds (See  Trading Probes Muscle Out Strong, Putnam Chiefs ).  Leading the exodus have been large institutional investors.  In February, Strong was fired by the Oregon 529 College Savings Board as manager of the state’s college savings plan.  (See Strong Out, Oppenheimer In At Oregon 529 Plan ).   Strong still manages more than two-thirds of the accounts in the EdVest program, though.