Strong Quits Fund Firm He Founded

Richard Strong stepped down Tuesday as chairman and chief executive of Strong Financial Corp., parent of the asset management company he founded 29 years ago, in a move analysts said was designed to help the company survive an industrywide probe of mutual fund trading practices.

A majority owner, Strong will take steps to divest himself of voting control of Strong Financial, the company said.

The Strong family of mutual funds was named, but not charged, in the initial probe unveiled in September by New York Atty. Gen. Eliot Spitzer that alleged widespread trading abuses in the $7-trillion industry.

Industry critics said the 61-year-old Strong, a North Dakota native who had long hoped to make the Menomonee Falls, Wis., company a powerhouse in asset management, had no choice but to resign.

Strong has been listed by Forbes magazine as one of the 400 richest Americans.

“This is the only chance that the company has to rebuild and survive,” said Roy Weitz, who runs mutual fund watchdog Web site FundAlarm.com. “In that respect, I think it is a good move. It is probably a month too late, but better late than never.”

Shareholder rights advocate Mercer Bullard of Fund Democracy added: “He had no choice, because any injunction or conviction would have barred him from the fund industry.”

The investigation led Matrix Asset Advisors Inc. to put on hold plans to sell its top-performing fund, Matrix Advisors Value Fund, to Strong, and some investors pulled money from the company. Strong now manages just over $40 billion; $933 million left Strong in September and October, the company said.

“This is probably a prelude to some additional charges coming down” perhaps against Strong himself from Spitzer or the Securities and Exchange Commission, said analyst Paul Herbert, who covers Strong for mutual fund research company Morningstar Inc.

If the company were to be sold, Herbert said, it would most likely be to a big bank.

In early November, Strong stepped down as director of the company’s mutual funds board after Spitzer’s office said he had made as much as $600,000 over five years in improper trading.

Kenneth Wessels, a former senior executive of Dain Rauscher Corp., which has since been acquired by Royal Bank of Canada, will replace Strong as chairman and CEO, the company said. Wessels also is a former chairman of the National Assn. of Securities Dealers board of governors.

A spokeswoman said neither Strong nor Wessels would comment.

Strong was involved in so-called market timing, the quick trading designed to exploit opportunities in the way mutual funds are priced, Spitzer’s office had said. Other Strong investors were discouraged from making similar trades.

The SEC has launched a similar investigation.

Strong had tried to deflect criticism by offering to reimburse Strong-advised funds for any financial losses investors suffered due to his transactions. Strong himself has said he does not believe his transactions were disruptive to the company’s mutual funds.

Strong also stepped down as chief investment officer and as director of the company’s board, effective immediately.

Richard Weiss, a 12-year Strong employee, will lead the company’s investment department, the company said.