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No. of Recommendations: 2
Why don't we get the facts straight here, first. Mr. Strong resigned as chairman of the board for the mutual funds - which, as entities organized under the Investment Company Act of 1940 are INDEPENDENT entities, governed by its board. Mr. Strong will remain on the board, as one of the (currently) 5 members of the board. The other 4 members are "independent" of Strong Financial Corporation, and have hired their own counsel and advisors to investigate the current allegations, and are seeking a new chairman, who will also be "independent". This board makes decisions to hire and fire investment managers for the funds, and other service providers providing accounting, shareholder servicing, and transfer agency services (and other services) to the fund and its shareholders. The board currently has a contract with Strong Investments, Inc. (a money manager and subsidiary of Strong Financial Corp.) to manage money, distribute the shares, and through other "Strong" entities, to provide some of the other services.

Mr. Strong owns most of Strong Financial Corp. (the parent of the Strong companies) and is its Chairman. Strong announced that the Strong Financial board would be expanded, and a majority of its members would ALSO be independent of Strong (i.e. not employees, advisors, etc.). Let's see..... Does anyone know who's on the board of Fidelity? It's another privately held mutual fund company - and I believe has not disclosed it's board members (all of which, I would bet, are insiders).

Interesting that someone you label as "light fingered" has just announced that he is turning over governance of an entity he owns over 80% of to strangers....

This is an industry investigation. What Mr. Strong has been accused of (by the highly unethical, and probably dis-barable Mr. Spitzer (why is no one questioning why he's making the rounds of the Sunday talk shows and CNBC WITHOUT EVER HAVING BROUGHT CHARGES AGAINST ANYONE?)) is not, and has NEVER been illegal. Market timing has been known to be an issue to the SEC for years - BUT because of the inability to define what it is, and what impact it has on funds, the SEC has not proscribed it. Was what Dick did illegal? No. Was it imprudent? That is a matter of degree. He made approximately 24 trades a year (not much for an admitted aggressive trader) and profitted $600,000 over 5 years - which is peanuts compared to his net worth of $800,000,000 (or more). Did it impact the funds? Let's try the case and see (or wait for the independent auditor's report).

What should we do about it? Well, the cure seems to be worse than the problem. The proposals include putting a 2% back end load for trades out within 5 days (so, market timing is now defined as 5 day swings? But Mr. Strong only averaged trades once every 2 weeks (and yes, a "few" of them were overnighters)...). Remember that the next time you make an investment and planes fly into buildings disrupting the markets to the point you want out, but can't, because of the back end load. Other proposals include putting hard closes on the 4p.m. ET deadline for fund trades (meaning the trades must be at the fund company by 4p.m.). That will destroy your ability to daily trade in your 401(k) plan - because now the cut off for transactions will have to be around noon ET (uh, 9a.m. for you west coasters...) so that your administrator can aggregate the trades and transmit them to the fund company by 4:00 (a process which now takes place after hours under a "sub-transfer agency agreement" between the funds and the administrators). Uh, no wait. The ability to aggregate trades and do a net buy or sell has to go away, so we can impose the 2% back end load previously mentioned. That now means the cost savings of aggregating go away, and your costs of investing have just skyrocketed....

Spitzer is off base on this one. Yes. There are some people who play fast and loose in the industry - just like in any industry. Yes. They should be prosecuted. But lets get the facts out in a rational manner. Examine the issues. Determine if a problem exists, and make sure the proposed corrections don't make matters worse.

What Spitzer is doing is instilling irrational (and unjustifiable) fear in the minds of the 90,000,000 American's who's only investment vehicle is mutual funds, causing them to remove assets (incurring tax consequences, and probably spending it as well). Yeah, like that is a good thing for those people (whom Spitzer claims he's fighting for)....

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