Fund Times: Dick Strong Gets the Pete Rose Treatment
Plus news on Janus, Artisan, Oppenheimer, Eaton Vance, and Franklin.
Plus news on Janus, Artisan, Oppenheimer, Eaton Vance, and Franklin.
State and federal regulators came down hard on Strong Capital Management and its founder, Dick Strong, last week, exacting $175 million in fines, remuneration, and fee cuts from the company and banishing Strong himself from money management.
Strong Capital, which was among the first fund families implicated in the trading scandal in September 2003, will pay $80 million in fines and disgorgement, according to the settlements with the Securities and Exchange Commission, the New York attorney general, and the Wisconsin Department of Financial Institutions. As part of a separate agreement with the New York attorney general, Strong Capital also promised to cut its fees by 6%, or about $35 million, for five years.
According to the settlements, Strong, in violation of its own prospectuses, let hedge fund Canary Capital make about 135 round-trip trades in four Strong funds, realizing gross profits of $2.7 million from December 2002 to May 2003. The fund family also gave Canary month-end holdings for the portfolios the hedge fund was trading.
Firm founder Richard S. Strong, who had been accused of market-timing his own firm's funds on his own, also agreed to pay $60 million in fines and disgorgement himself, the settlements said. The SEC, which said Strong's rapid trading netted $1.6 million in profits between 1998 and 2003, also barred the founder from the investment business for life.
The SEC also barred two other Strong managers from the industry for life and hit them with stiff fines for their involvement in the scandal. Former Strong executive vice president Anthony J. D'Amato agreed to pay $750,000 for approving the timing arrangement with Canary. Former Strong compliance officer Thomas A. Hooker will pay a $50,000 fines for failing to monitor and stop his boss' trading.
Morningstar still recommends that investors consider selling Strong funds. For a quick overview of news and developments related to the fund industry scandal, as well as Morningstar analysts' recommendations on specific fund firms, check out our Fund Industry Investigation Update table.
Reconsidering Janus
In the wake of settlements with state and federal regulators, a shakeup of the fund company's executive suite, and other reforms, Morningstar has decided to lift its "consider selling" recommendation from the Janus fund family.
Janus was one of the first fund families implicated in the fund trading scandal. Though it immediately promised to remunerate shareholders and cooperate with regulators, it was slow to hold employees and executives accountable for implementing the trading deals. Since then Janus has taken to steps to address concerns about the future direction of the firm, including finding a new CEO and CIO and settling market-timing charges with state and federal authorities. Given these developments, we believe that investors can once again consider investing in Janus funds. Though we do not feel that the slate has been wiped clean and we acknowledge the firm still faces many challenges, we do think that Janus is currently heading in the right direction.
Artisan Small Cap Pushes Its Upper Limit
Artisan Small Cap (ARTSX) has changed its investment mandate slightly, according to an SEC filing. The upper market capitalization limit for companies in which the fund may invest has changed from $1 billion to $1.5 billion. The fund also no longer has to maintain a weighted average market capitalization below $1 billion.
Artisan International (ARTIX) now imposes a 2% redemption fee on Investor shares held for 90 days or less. The firm already had 2% short-term redemption fees in place at Artisan International Small Cap (ARTJX) and Artisan International Value (ARTKX).
Oppenheimer Launches Value Fund
OppenheimerFunds has launched Oppenheimer Select Value Fund, which invests in domestic stocks of all capitalizations. The fund officially opened on Feb. 27, 2004, and is managed by a team consisting of Christopher Leavy, head of OppenheimerFunds’ Value Equity team; Emmanuel Ferreira, lead manager of Oppenheimer Balanced ; and John Damian, lead manager of Oppenheimer Small Cap Value .
Etc.
Eaton Vance Tax-Managed International Growth (ETIGX) is now subadvised by Eagle Global Advisors' Edward R. Allen, III and Thomas N. Hunt, III. The fund was previously managed by Kiersten H. Christensen, vice president of Eaton Vance Management, and Boston Management and Research. Also, the fund's name has changed from Tax-Managed International Growth to Tax-Managed International Equity.
Franklin Global Aggressive Growth will close on May 28, 2004 and liquidate on July 23, 2004.
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