Bad things happen to bad people who buy bad stocks!!
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"WITH THREAT OF CHARGES LOOMING, STRONG LEAVES HIS INVESTMENT
2003-12-02 21:57 (New York)
Editors: Edited by USA TODAY. Attention Wisconsin.
By ELLIOT BLAIR SMITH
USA TODAY
Mutual fund maverick Richard Strong resigned Tuesday from Strong
Capital Management, the $40 billion investment advisory company he
founded 29 years ago, under the cloud of possible legal charges by
state and federal regulators and an outflow of investor funds that
challenges the firm's survival.
Strong's departure is the latest in the mutual fund industry's
widening scandal, which has claimed the CEOs of Putnam Investments,
Pilgrim Baxter and Security Trust. But regulators said they will press
ahead with their investigations of the wealthy executive.
New York Attorney General Eliot Spitzer said last month that he
would bring charges against Strong for making rapid trades in his
funds that allegedly skimmed profit from long-term investors.
He also is examining Strong's relationship with an affiliated hedge
fund, Flint Prairie, and a family partnership, Calm Waters, that
shared several overlapping investments with Strong Capital.
A spokeswoman for Spitzer, Juanita Scarlett, said Strong's
resignation ``is no factor in our ongoing investigation.'' The
Securities and Exchange Commission also is investigating.
Don Phillips, managing director of mutual fund analyst Morningstar,
said, ``Spitzer's only hinted at the evidence against Strong. But
obviously the two parties who know the evidence - Spitzer and Strong -
are acting as if the case is an exceptionally damaging one.''
More than $2 billion in investor funds have fled Strong Capital in
recent weeks, and many institutional clients say they are reassessing
their relationships with the company.
``He has built the company in his own image and in his own style,''
said Ward Harris, managing director of McHenry Group. ``Firms built
like that tend not to do well when the founding father goes out for a
pack of cigarettes.''
In a statement, Strong said he ``always tried to act in the best
interests of investors'' and believed the company was ``well
positioned for the future.'' He said he would relinquish voting
control of his company but expressed no intention to sell. Goldman
Sachs reputedly offered Strong about $1 billion to cash out his stake
a few years ago, near the market's peak, an offer Strong turned down.
``I'd be surprised if he got a number anywhere close to that now,''
said Morningstar's Phillips. ``We're talking about a penalty that will
be in the hundreds of millions of dollars for Dick Strong personally.
The market is exacting a huge cost, and the wheels of justice are
still turning.''
Strong turned over the company's management to Kenneth Wessels, a
retired former executive of Dain Rauscher Inc., now RBC Dain Rauscher.
The job of chief investment officer at Strong Capital goes to his
longtime second in command, Richard Weiss.
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