Strong Funds Says SEC Is Investigating It

In a second major blow to the mutual fund industry’s image this year, the Milwaukee-based Strong Funds organization has confirmed that it is under investigation by the Securities and Exchange Commission.

Strong told employees Friday that it is “cooperating with the SEC in an investigation relating to cross trades and disclosures between 1987 and early 1990.”

The SEC probe apparently focuses on securities trades made between Strong funds. While intra-company trades aren’t illegal, the SEC sets down strict rules governing how fund companies must price and document the trades, so that a fund operator can’t favor one fund at another’s expense.

The Wall Street Journal said the SEC is studying whether Strong dumped depressed junk bonds from some of its institutional funds into funds owned by small investors. But Richard Strong, the company’s principal, told employees that “there has never been any allegation that trades were used to favor one account over another.”

Earlier this year, the fund industry’s reputation was tarnished by news that Denver-based Invesco Funds fired one of its star managers for failing to report personal stock trades. The firing raised fears that fund managers may be trading for personal gain in advance of trades they make for their funds.