College investment company fired
State Treasurer Randall Edwards last Thursday fired one of the companies that handles the Oregon College Savings Plan.
The company having its relationship with state college monies terminated is Strong Capital Management company. Chairman Richard Strong and company allegedly engaged in improper trading inmutual funds.
Edwards made the recommendation to fire Strong at a special meeting of the Oregon 529 College Savings Board, and his recommendation was approved. Randall expects to have a better plan in place in two to five months.
The college savings plan gives parents or grandparents the opportunity to invest in mutual funds while children are growing up. They can later cash out the investments tax-free to pay college expenses.
According to The Oregonian, Oregon residents have opened 26,000 accounts and invested $134 million in the plan options managed by Strong. Those funds would transfer automatically to similar accounts in the new plan.
Strong, who is founder and chief executive of the company, is one of a number of executives of money-managing firms to have come under scrutiny of the Securities and Exchange Commission (SEC) for improper trading. The accusations involve an unethical technique known as market timing, which involves making short-term trades in fund shares. Strong is alleged to have made $600,000 in profits with his improper trading, but there is as yet no determination as to how much, if any, his actions may have harmed the accounts of other investors.
Last week, the Associated Press reported from Boston that the SEC has cracked down on another firm, Putnam Investments, for market timing. Putnam, without admitting or denying the SEC’s contentions, agreed to detect and deter market timing trades and establish a process for repaying investors harmed by excessive market timing.
Sam Collie, executive director of admissions, records and financial aid, said, “This has no real effect on financial aid. I can’t speak for PSU in general.”
Jay Kenton, PSU vice president for finance and administration, did not see how the situation could directly affect Portland State. Any money that comes into the university goes directly into the bank and under control of the state treasurer, he said.
Market timing is not illegal, but it is considered unethical. The Strong company has a policy prohibiting the practice. Going against its published prospectus is considered by regulators a severe breach of fiduciary responsibility.
It is believed that if market timing resulted in any loss to Oregon investors, the loss would be small. Strong has announced it will reimburse investors for any financial losses.
