The ongoing settlement talks between the Menominee Falls, Wisconsin-based Strong,New York State Attorney General Eliot Spitzer’s office, the U.S. Securities and Exchange Commission (SEC) and the Wisconsin Attorney General’s office could be finalized within days, unnamed sources told Reuters. The most recent report follows up on Monday’s Wall Street Journal report that Strong and regulators could reach a settlement by the end of this week.
In the most recent development, Strongis expected to agree to pay more than $75 million in civil fines and restitution to settle charges the firm improperly market timed mutual fund trades. Additionally, terms of the purported settlement include a reduction in the firm’s mutual fund management and advisory fees it charged to investors from anywhere between 5% and 7% percent for a period of five years, the Reuters report said.
A $75 million settlement would be on the low-end of the settlements reached between regulators and other fund firms includingAlliance Capital Management, Massachusetts Financial Services Co., FleetBoston Financial, Bank of America, and Putnam Investments. Those settlements include:
- Alliance – $150 million in disgorgements, including $100 million in civil penalties
- Bank of America, $250 million in disgorgements and $125 million in penalties
- MFS – $175 million in disgorgements, $50 million in civil penalties
- FleetBoston – $70 million in disgorgements, $70 million in civil penalties
- Putnam – $10 million disgorgement, $100 million in penalties.
Not provided in the Reuters report of the Strong settlement talks was a breakdown of the $75 million settlement. Previous settlements involving alleged mutual fund trading have involved civil fines and disgorgements. The civil penalties can either sent to the U.S. Treasury to be deposited into the general fund of the U.S. government or combined with the disgorgement phase of a settlement. Disgorgements on the other hand, essentially serve to reimburse the “victims” of the wrongin the case of the recent spate of market-timing and late-trading settlements, “to provide remuneration for investors’ aliquot share of losses suffered,” according to the SEC’s Administrative Proceeding File documentation (See The Bottom Line: Following the Money ).
Apparently holding up the talks though are provisions in the settlement related toRichard Strong, the firm’s founder and former chairman. Trading records subpoenaed by Spitzer’s office show a five-year period ending in 2002 suggesting that the 62-year-old 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.
Earlier reports said Strong would not face criminal charges in the matter, but would be banned for life from the securities industry.
Also in the Reuters report was more details surrounding the possible sale of Strong toWells Fargo & Co. Wells sent its attorneys to meet with regulators to discuss terms of the settlement Reuters said. Even though Strong had $35.3 billion in equity and fixed-income assets under management as of March 31, reports put the price tag of a possible Wells Fargo deal at only $500 million.
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