Another top executive of Strong Capital Management has been ensnared in the scandal over “rapid trading” of mutual funds.
Anthony D’Amato, a member of Strong’s office of the chief executive, was involved in a deal to allow Canary Capital Partners LLC to rapidly trade shares of Strong mutual funds and at the same time make investments in a hedge fund run by Strong, according to people familiar with the matter.
In October 2002, Mr. D’Amato met with Canary head Edward Stern to discuss allowing Canary to conduct rapid trades in shares of Strong’s funds, according to people familiar with the matter. The trades, known as market timing, were designed to take advantage of expected moves in the prices of the funds’ shares, producing profits for Canary at the expense of Strong’s long-term fund shareholders.
Most of the attention directed at Strong in recent weeks has revolved around the personal trading by Richard Strong, the firm’s founder. According to investigators, Mr. Strong profited by engaging in short-term trading of Strong mutual funds. Mr. Strong has said he performed rapid trades in Strong funds, but he denied that his actions were disruptive. He stepped down as chairman of the board of Strong Funds, but retains a director’s seat and continues in his duties as head of Strong Capital Management.
Word about Mr. D’Amato’s alleged involvement in Strong Capital Management’s trading arrangements with Canary, in addition to the previously reported news about Mr. Strong’s personal trading, comes as other fund firms have cited problems with improper share trading that reached into the executive ranks of their companies. Already top executives at fund companies such as those run by Bank of America Corp., Bank One Corp. and Alliance Capital Management Holding LP (AC) have stepped down from their jobs due to their direct or indirect roles in agreements to permit improper fund trading.
Mr. D’Amato denies any wrongdoing, his lawyer says.
A spokeswoman for Strong declined to comment on Mr. D’Amato’s alleged involvement with Canary.
Neither Mr. Strong nor Strong Capital Management has been charged with any wrongdoing, but New York Attorney General Eliot Spitzer is expected to file civil and possibly criminal charges in the case shortly, according to people familiar with the matter. Strong Capital was one of the four fund companies cited for cooperating with Canary in a civil complaint Mr. Spitzer filed against Canary in early September when disclosing his investigation into the mutual- funds industry.
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