Sep. 23–Saying it isn’t enough for Strong Capital Management Inc. to conduct its own internal investigation into accusations of allowing improper trades in some of its funds, state Treasurer Jack C.Voight called Monday for an independent, state-controlled audit.
Voight said he was acting on behalf of investors in the state’s college savings programs — EdVest and Tomorrow’s Scholars. Those investors have nearly $182 million, or about 19 percent, of the programs’ $936 million of assets in the Strong Growth Fund.
That fund was one of five Strong offerings New York Attorney General Eliot Spitzer accused of allowing a New Jersey hedge fund, Canary Capital Partners LLC, to make short-term trades in exchange for fees and deposits in longer-term accounts.
“We have a fiduciary responsibility because this is a state-sponsored program and we need to protect consumers’ interests,” said Voight, who said Strong Chairman Richard S. Strong has not returned his phone calls, although he has spoken “briefly” with other Strong representatives. “I’m going to encourage Strong to pay for the audit because we didn’t create the controversy here.”
Voight also wants the board that administers the state’s college savings programs to encourage Strong to offer reimbursement if it turns out shareholders were damaged by the hedge fund’s trades, and to push Strong to allow EdVest to offer other companies’ funds.
The administration of then-Gov. Tommy G. Thompson in May 2001 gave Strong an exclusive five-year contract to manage EdVest. Tomorrow’s Scholars uses mutual funds managed by American Express and Strong.
So far, Spitzer’s accusations have not dampened investors’ enthusiasm for Wisconsin’s college savings programs. The programs pulled in $6.8 million last week, up from the average influx of about $5 million a week, Voight said.
The programs now have more than 160,000 participants, who have a total of $1 billion invested, he said.
“EdVest has proven to be an attractive option for many Wisconsin families and has been cited by numerous objective parties as a great way to save for college,” said Stephanie Truog, a Strong spokeswoman. “Each EdVest portfolio undergoes an annual independent audit as part of regular procedures.”
Strong said last week it had hired outside professionals to conduct an internal review of Spitzer’s allegations.
Voight will recommend today at a regularly scheduled meeting that the College Savings Program Board — which administers EdVest and Tomorrow’s Scholars — approve his proposal asking Strong to submit to, and pay for, an independent audit.
If the board approves his proposal, it would go to the Department of Administration for further action. That department contracts with Strong for the college savings programs.
“We certainly want to see the investor protected, but I don’t think I can say what the Department of Administration reaction is to Treasurer Voight’s proposals until we hear more about them,” said Michael D. Wolff, the department’s finance programs administrator.
Wolff also said the state Department of Financial Institutions is “looking into” the situation at Strong and Spitzer’s complaints.
“We’d like to hear what they find,” said Wolff, who declined to answer whether Financial Institutions had formally launched an investigation.
“We have no comment at this time,” said Cheryl Weiss, a Department of Financial Institutions spokeswoman.
Strong is the only one of the four mutual fund companies Spitzer fingered that hasn’t offered to reimburse shareholders if it turns out they were damaged by Canary’s trades.
The state likely won’t be able to act on Voight’s other proposal to add other companies’ mutual funds to EdVest without Strong’s cooperation because of the exclusive contract that goes until 2006.
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