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Embattled Strong quits post amid expanding mutual-fund probe

By Seattle Times news services

	Richard Strong
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NEW YORK — Richard Strong resigned as chairman of Strong Mutual Funds yesterday, just days after New York Attorney General Eliot Spitzer vowed to bring charges against him for improper trading.

Strong's resignation is the latest development in an ever-widening probe of the $7 trillion mutual-fund industry by Spitzer and federal regulators.

While Strong will step down as chairman of the mutual-fund group, he will retain day-to-day control over its parent company, Strong Capital Management, as its chairman and chief executive.

The independent directors of Strong Mutual Funds accepted his resignation and will begin a search for an independent president, a company statement said.

The new president would report directly to the independent directors and work directly with Strong Capital management as well as David Ruder, the former U.S. Securities and Exchange Commission chairman retained last week to review the firm's policies and procedures, the statement said.

Strong Capital, which oversees $42.7 billion in assets, was one of four companies named when Spitzer unveiled his investigation into fund trading in September.

Spitzer's office says Strong and others close to him made as much as $600,000 over five years making quick, in-and-out trades of his firm's funds. The quick trades were designed to exploit arbitrage opportunities in the way funds are priced, and Strong's regular investors are discouraged from making them, the Attorney General's Office said.

Strong, who founded the investment company in 1974, has said he does not believe his transactions were disruptive to the company's mutual funds.

Yesterday, Spitzer said companies must be forced to pay back to investors the hefty fees received for managing mutual funds during the time they allowed fund-trading abuses to occur.

"If they're expecting to get settlements (with regulators) they're going to have to give much more back than just (investors') losses. They're going to be paying stiff fines and giving back their management fees. They violated their trust with the American investor," Spitzer said.

He also has lashed out at the Securities and Exchange Commission, saying "heads should roll" for what he calls its failure to detect abuses and act quickly.

Eclipsed for months by Spitzer in the pursuit of conflicts of interest and abuses by Wall Street investment firms, the SEC jumped into the mutual-fund investigation in early September.

Dozens of firms have been subpoenaed, including Fidelity Investments, Janus Capital Group, Morgan Stanley and Vanguard Group.

Congress is looking into the scandal and the regulators' response. Spitzer and the SEC's enforcement director, Stephen Cutler, are to testify before a Senate committee today.

In testimony prepared for the hearing, Spitzer says chairmen of fund company boards should be wholly independent from the management companies that run the mutual funds.

Copyright © 2003 The Seattle Times Company