Wisconsin Weighing Strong, EdVest Relationship

October 30, 2003 (PLANSPONSOR.com) - After news came down Thursday that New York state Attorney General Eliot Spitzer is considering charging Strong Financial head Richard Strong with defrauding investors, the State of Wisconsin said it will take a "wait-and-see" approach before deciding any course of action with state investments.

Any move by Wisconsin would directly affect the state-sponsored 529 college-savings plan EdVest, for which Strong manages $1 billion.   However, Wisconsin State Treasurer Jack Voight told Dow Jones he is taking a measured approach on any action taken by the state until after more information is released about the investigation, while still renewing his call for an independent audit of the Strong-managed plan.

“We should hold off on action until there’s more information available,” Voight told Dow Jones, saying his reactions should be “guarded right now because the fact is that Spitzer hasn’t made any specific charge against Dick Strong.”

Initially Voight called for an independent audit of the EdVest program in September, after Spitzer initially announced his probe of mutual fund trading practices ( See   Spitzer Fund Abuse Probe Pumps Out More Subpoenas) .  “The Spitzer investigation was the impetus,” Voight said. “Because he was alleging other mutual-fund companies were having problems, I thought it important to have a third-party review.”

However, the audit had not yet begun when e arlier Thursday, it was reported that Spitzer was looking into allegations that Richard Strong routinely used hisMenominee Falls, Wisconsin-basedfund 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 ).

Even though market timing – the rapid trading in and out of mutual funds to take advantage of inefficiencies in the market – is not illegal, per se, it is generally frowned upon across the industry. In fact, Strong and most other funds say in their prospectuses they discourage this activity because it allows timers to make money while diluting the value of long-term investors’ shares.

Left out of the Strong Financial fray though is the $55.6 billion in retirement assets for public employees the state maintains. In fact, outside of the EdVest relationship, Voight said he did not believe Strong manages any other state money.