Wells Fargo buys mutual fund

SAN FRANCISCO — Banking giant Wells Fargo & Co. snapped up the scandal-ridden mutual fund company Strong Financial on Wednesday, just days after Strong and its founder settled allegations of improper trading.

Wells Fargo, based in San Francisco, will acquire a total of $34 billion in assets under Strong Financial’s management.

The terms of the deal were not disclosed, but industry analysts estimated Wells will end up paying between $400 million and $700 million by the time the deal is completed in seven to 10 months — a bargain, given that Strong Financial’s assets probably would have fetched more than $1 billion a year ago, said Hoefer & Arnett analyst Richard Bove.

The steep discount stems from the scandal. Industry regulators accused Strong Financial’s founder and former chief executive Richard Strong of engaging in improper trading practices at other shareholders’ expense.

Last week, Richard Strong accepted a lifetime ban from the mutual fund industry and agreed to pay $60 million. His 30-year-old firm agreed to $115 million.

Richard Strong, who owns 85 percent of his privately held company based in the Milwaukee suburb of Menomonee Falls, Wis., can still pocket some of the profits from the sale.

The mutual fund industry has been engulfed in a scandal over abuses such as market-timing, a type of rapid, in-and-out trading that can hurt long-term shareholders. The investigation has led to subpoenas, resignations, firings and hundreds of millions in dollars in penalties.

Strong’s disillusioned shareholders have been dumping their funds for months, withdrawing about $5 billion since August, said industry analyst Gareth Lyons.

“The settlement and this sale are steps in the right direction, but there is still a lot of uncertainty associated with these funds,” Lyons said.

Bove said he expects Strong’s 70 mutual funds, held by 414,000 households in 870,000 accounts, to be given the Wells name.