Strong Offers to Give Founder's Market-Timing Money Back

The beleaguered fund family also named former SEC chief David Ruder to spearhead changes.
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Strong Funds

is once again pledging to give money back -- whether that leads to the scandal-tainted firm getting its credibility back in exchange remains to be seen.

In a news release late Thursday, Strong Financial announced that Chairman and founder Richard Strong would reimburse Strong fund investors for any losses that resulted from his "small number" of next-day trades in the funds.

The offer comes after New York Attorney General Eliot Spitzer's office revealed that it

expects to file charges against the founder for engaging in abusive short-term trading over the past five years.

Strong unveiled other measures late Thursday aimed at restoring investor confidence, including reconstituting its funds' board to have a majority of independent directors -- something the industry's best practices has recommended -- and hiring former

Securities and Exchange

Chairman David Ruder to review Strong's compliance issues in the wake of the unfolding scandal.

Strong, of course, was one of the four fund companies accused in Spitzer's Sept. 3 complaint of allowing hedge fund Canary Capital Partners to make improper trades in their funds in exchanges for padded fees. Three weeks later, Strong said it would reimburse investors in the four funds in question if the firm determines investors were hurt by the trading. Thursday's second offering of reimbursements came with an additional gesture from the company's founder.

"If it becomes appropriate, I would be prepared to step aside to enable new leadership to bring new energies to this company," Strong said in the news release.

The firm also said it is bringing in Richard Anderson, an independent compliance consultant and former SEC officer focused in the Midwest region, to lead the implementation of Strong's compliance procedures and recommend new compliance systems if needed. The firm also said it will more rigorously monitor frequent trading by investors, step up monitoring of "Strong associate trading" in its funds, and limit selective disclosure of fund portfolio holdings.

The move to bring in Ruder signals that the firm, perhaps belatedly, is serious about reassuring investors that it is cleaning house and keeping as much of its $42 billion in assets under management from heading out the door.

The former SEC chairman and current Northwestern University law professor also oversees the Mutual Fund Directors Forum, a well-regarded organization that aims to educate independent fund directors on issues of compliance and fiduciary responsibility.

For his part, the 61-year-old Strong said he doesn't believe "his transactions were disruptive to the funds," the statement said.

While Spitzer's office wasn't immediately available for comment, it's safe to assume that Spitzer would take exception to Strong's belief that his trades weren't disruptive. Spitzer's office plans to file charges against Strong sometime next week -- the attorney general hasn't decided yet what specific charges would be levied, but criminal charges are under consideration. Strong, whose net worth was estimated at $800 million on the Forbes 400 list, allegedly made about $600,000 in profits from his short-term trading.

In September, Strong said the firm's internal review revealed that Canary made trades in four of its funds:


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