Nov. 1–Strong investor Bill Van Lieshout of Madison is in a quandary, and he doubts that he’s the only one.
Van Lieshout has placed thousands of dollars in Wisconsin’s EdVest college savings program, which is managed exclusively by a unit of Menomonee Falls-based Strong Financial Corp. He’s grown steadily more concerned as allegations of improper trading have mounted against the mutual fund company and expanded to include its chairman and founder, Richard S. Strong.
Reacting to these allegations made against Richard Strong by New York Attorney General Eliot Spitzer, Strong Financial acknowledged Thursday that the executive had actively traded money for himself and his friends and family in and out of company funds. In a statement, Strong promised to personally reimburse investors if he had harmed them and pledged closer monitoring of questionable trades.
As a “pedestrian investor,” Van Lieshout asked how he could know whether he has even suffered losses.
“I don’t know. How could I prove it? I wonder how many pedestrian investors there are like that in this state?” Van Lieshout asked.
As investigations by Spitzer’s office and other agencies lead to almost daily allegations of wrongdoing in the mutual funds industry, Van Lieshout and thousands of other investors face a difficult choice should they pull their money out of a company like Strong on the basis of unproven accusations?
The same question confronts the different groups of officials who manage EdVest, the retirement plans for UW-System employees and the retirement plans for workers in large private companies like SC Johnson of Racine. The widespread nature of the concerns is a product of the great size of Strong Financial, which manages $42.7 billion in assets for some 460,000 households around the country.
“Was there a fiduciary breach and who was responsible and how serious was it? Those are all unanswered questions right now,” said Mary Anglim, program manager for the retirement plan for UW-System employees.
Questions against Strong Financial go back to a Sept. 3 complaint by Spitzer’s office.
The complaint, made against Canary Capital Partners, alleged that the New Jersey hedge fund had used its size to gain improper short-term trading privileges in five Strong funds. On Wednesday, Spitzer alleged that Richard Strong had also engaged in similar short-term trades, enriching himself at the expense of long-term investors in his funds.
Strong spokeswoman Stephanie Truog declined further comment Friday, referring instead to an earlier statement that the company would uphold shareholders’ interests.
Mary Anglim said the board overseeing the UW-System retirement plan was trying to give information to its investors and let them decide how to react. At the end of 2002, around 680 plan investors had $14.4 million invested in Strong funds, including some of the funds mentioned in Spitzer’s Sept. 3 complaint, Anglim said.
Therese Van Ryne, a spokeswoman for SC Johnson, said an undisclosed amount of the company’s pension trust is invested in Strong funds, though not in any of the funds that were implicated in Spitzer’s complaint.
“We plan to closely monitor the situation,” said Van Ryne.
Through EdVest and other state college savings programs, Bill Van Lieshout and other investors like him have placed some $759 million in Strong funds, of which $182 million was in funds named in Spitzer’s complaint. Documents filed with federal regulators listed a number of other large companies and organizations that have contracted with Strong for their retirement plans.
The state College Savings Program board, which oversees EdVest, will hold an emergency meeting Monday to determine its next step following the most recent allegations against Strong. Board member and state Treasurer Jack Voight said the public meeting will include a discussion with the board’s newly hired attorney and a report from Strong officials on the investigations into their company.
“We’re focusing on the legal (aspects) and the protection of the investors,” Voight said.
Van Lieshout said he was still waiting for that sense of reassurance from the college savings board or Strong Financial.
“From a financial standpoint, this is the second-biggest investment I’m going to make in my life,” he said.
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(c) 2003, The Wisconsin State Journal. Distributed by Knight Ridder/Tribune Business News.
