Strong Funds' Chairman Resigns His Position

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Strong Funds' Chairman Resigns His Position

By Jonathan Fuerbringer, The New York Times

November 3, 2003

Richard S. Strong, the founder of the Strong Mutual Funds, resigned yesterday as chairman of the fund's board of directors, a few days after the New York attorney general said he would take action against Mr. Strong for improper trading of shares.

But Mr. Strong kept his job as chairman and chief executive of Strong Capital Management, which means he is still running the mutual fund company. He will no longer be on the fund's independent board, which is made up of outside directors who are supposed to look after the interests of investors.

The announcement was made by the independent directors of the Strong Mutual Funds as the investigation into improprieties across the mutual fund industry has gathered momentum.

The directors have begun a search for "an independent president" for the funds who, according to their statement, will oversee the management of the funds, will report to the independent directors and "will have a direct working relationship with the management of Strong Capital Management."

Mr. Strong has not disputed accusations that he has made as much as $600,000 in profits from his trading. But in a news release last week, the company said that Mr. Strong did not believe that his trades had been "disruptive" to the funds. He said last week that he would reimburse the funds for any losses incurred because of his trading.

A spokeswoman for Strong Mutual Funds said that Mr. Strong would still be running the mutual fund company in his role as chairman and chief executive of Strong Capital Management.

A spokeswoman for the independent board of directors would not comment on why the board wanted Mr. Strong to resign.
A spokesman for Eliot Spitzer, the New York attorney general, said last night that "the action by Mr. Strong does not and would not affect our ongoing investigation."

The attorney general's office has said that its investigation is very likely to result in criminal charges against Mr. Strong and others at the mutual fund company.

Mr. Strong made his profits by trading in and out of the company's funds through his own account and through accounts set up for his family and some friends. The trading took place from 1998 to 2001, and maybe longer, a person briefed on the matter said.

Federal and state regulators have said that this type of trading violates securities laws because executives of mutual fund companies must put the interests of their shareholders first.

"This is an outrage that should distress every mutual fund investor," Mr. Spitzer said in an interview last week. "If you ever wanted proof that there were two sets of rules — one for insiders and one for individual investors — this is it."

Mr. Spitzer also said that there were compliance officials at Strong who were supposed to keep their eye on the kind of trading he said Mr. Strong engaged in.

But, he said, these employees were discouraged from examining the trading in the mutual funds Mr. Strong used. This means, Mr. Spitzer said, "there were a core of people at the top of the company who knew about this."

Strong Capital Management, which is based in Menomonee Falls, Wis., manages nearly $43 billion in mutual fund and institutional assets, including those for pension funds. Putnam Investments, the fifth-largest mutual fund company, has $272 billion under management.

Mr. Strong, 61, is one of the richest men in the country. He built up the small investment firm he founded in 1974 by recruiting top portfolio managers and aggressively marketing his mutual funds.