Strong Capital Management, its transfer agent and broker/dealer, along with founder Richard Strong and two executives, agreed to pay more than $175 million to settle with the SEC and the attorneys general of New York and Wisconsin Wednesday for market-timing abuses. As part of the deal, Strong and the two executives are permanently barred from the fund industry.
The SEC found that while Strong Capital told investors they could be barred from the companys funds for market timing, it allowed Canary Capital to market time Strong funds through 135 round-trip trades resulting in $2.7 million in gross profits. Strong himself market timed a number of his firms funds, including one he managed, between 1998 and 2003, resulting in $4.1 million in gross profits and $1.6 million in net profits. Strong reportedly made more than 1,400 redemptions over a period of six years.
Strong Capital failed to disclose the arrangement with Canary or Strongs own personal trades to the board of directors or to shareholders, the SEC said, while the firms transfer agent and broker/dealer facilitated the arrangement. Also charged are Anthony DAmato, Strong executive vice president, for approving the deal with Canary, and Thomas Hooker, the firms chief compliance officer, for failing to stop the arrangement or Strongs personal trades after learning of them.
Strong Capital will pay a total of $80 million in disgorgement and civil penalties, while its founder will pay $60 million. DAmato is being fined $750,000 in disgorgement and civil penalties, and Hooker a $50,000 civil penalty. Also as part of the deal, Strong Capital will reduce its fees by 6% for five years, a value of $35 million.
"Strong Capital Management and its founder betrayed the mutual fund investors they were duty-bound to protect," commented Stephen M. Cutler, director of the SECs division of enforcement. "In Richard Strongs case, his personal trades were a betrayal of the highest order, warranting the stiffest possible civil sanctions."
New York Attorney General Eliot Spitzer added: "The settlement we reached will protect Strong investors from overreaching by their fund managers. Shareholders have a right to expect nothing less. This agreement is part of our ongoing effort to clean up the mutual fund industry and demand accountability from those who have been entrusted by the investing public."