Spitzer Reportedly to Accuse Strong Funds Chief

In a further escalation of the mutual fund industry scandal, New York Atty. Gen. Eliot Spitzer will accuse the head of the Strong mutual funds of improper trading in his company’s funds, according to a published report today.

The New York Times said Spitzer would bring charges against Richard S. Strong, chairman and founder of Strong Capital Management Inc., alleging that he traded in and out of certain funds in recent years, contrary to the firm’s official policy on “market timing.”

The trades generated at least several hundred thousand dollars in profit for Strong’s personal accounts and accounts he set up for family and friends, Spitzer said, according to the Times.

Though rapid trading by itself isn’t illegal, regulators say fund companies and executives can be accused of fraud if they accommodated or condoned such trading for favored investors while discouraging other investors from the practice.

Short-term trading in funds by some investors can lower the returns earned by longer-term investors.

Strong was unavailable for comment Wednesday.

He founded the company in 1974 in Menomonee Falls, Wis. The firm manages about $43 billion in assets.

Strong Capital Management was one of four fund companies named when Spitzer publicly announced his probe of mutual fund trading in September. Spitzer said Strong Capital allowed hedge fund Canary Capital Partners to engage in illegal or improper trading of Strong fund shares in return for other business.