Richard Strong has relinquished control of the mutual fund company he founded, and regulators have filed suits accusing Invesco Funds Group and its chief executive of securities fraud in theburgeoning investigation of improper trading.
Strong is under pressure from the New York State attorney general, Eliot Spitzer, who has said that he intends to file suit against Strong for trading in and out of funds for his own profit.
Strong, 61, resigned Tuesday as chairman and chief executive of Strong Financial, the fund management company, having stepped down last month as chairman of the board at Strong Mutual Funds.
One person briefed on Strong’s plans said that Strong had planned to try to sell the company, of which he owns more than 80 percent.
Invesco, with $18 billion in assets, joins a growing group of investment firms, brokers and intermediaries sued by regulators since allegations of improper trading erupted in September with a single hedge fund. Since then, numerous companies have dismissed employees, begun internal inquiries and responded to subpoenas. Spitzer, who brought the case against Invesco on Tuesday in tandem with the Securities and Exchange Commission, said he expected to file more cases before the end of the year.
Like Putnam and Pilgrim Baxter before it, Invesco has much at stake as it tries to resolve regulators’ complaints. The company, which is based in Denver and is a division of Amvescap of London, said on Tuesday that it would vigorously contest the allegations, but a prolonged dispute could spur investor withdrawals.
Since regulators filed suit against Putnam in late October, its chief executive has been replaced, and its assets have shrunk by $32 billion, or nearly 12 percent, as investors withdrew their money. The founders of the PBHG funds, Gary Pilgrim and Harold Baxter, have also been forced out.
Strong Financial, based in Menomonee Falls, Wisconsin, manages more than $40 billion in mutual fund and institutional assets, including pension funds, and said more than $500 million flowed out of the company in October.
Strong is among the richest people in the United States, with virtually all of his wealth tied up in the fund company. He is said to be worth $800 million, but he earned just $600,000 from the improper trading, according to regulators.
Invesco executives are not accused of improper trading themselves, but they are said to have permitted it by many others. The complaints say management went to great lengths to lure dozens of market timers, an industry term for those who trade rapidly for short-term gains. As much as $900 million of Invesco’s $18 billion in assets was controlled by market timers as of the middle of last year, according to the attorney general.
Though the practice is not illegal, regulators have said it dilutes the returns of long-term investors and often violates the policies of funds and their management companies, constituting fraud.
The attorney general is seeking the return of more than $160 million in management fees earned by Invesco executives on funds traded by timers. The commission also wants Ray Cunningham, the chief executive, to disgorge his salary, bonus and other compensation during the period of illegal activity.
Extensive market timing was permitted at Invesco from 2001 until July 2003, when Spitzer sent a subpoena to the company, the attorney general said. The trading occurred in at least 10 Invesco funds, the commission said.
The SEC and Spitzer said in their complaints on Tuesday that Invesco executives had repeatedly been told that active trading by timers was hurting the performance of some funds.
