Strong, Regulators Close on Settlement

May 17, 2004 ( - Strong Financial Corp. and state and federal regulators are close to reaching a settlement of charges related to market timing mutual fund transactions carried out by the firm, the Wall Street Journal is reporting.

Citing people familiar with the matter, the Journal said a settlement could come as early as this week.   Details of the purported settlement were not divulged in the Journal’s report.  

In addition to reaching a settlement of the dishonest mutual fund trades, the Journal said such a deal would clear the way a sale of the company to Wells Fargo & Co.   Even though Strong had $35.3 billion in equity and fixed-income assets under management as of March 31, the Journal puts the price tag of a possible Wells Fargo at only $500 million.

Ever since news of the market timing allegations at Strong emerged in October, investors have pulled 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 also 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.

According to the charges brought by New York Attorney General Eliot Spitzer, Strong’s Chairman Richard Strongroutinely used his Menominee Falls, Wisconsin-based 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.