Richard Strong and the investment firm he founded, Strong Capital Management Inc., agreed to pay a combined US$140 million to settle fraud charges involving improper trading in the company’s mutual funds, the Securities and Exchange Commission announced today.

The trading, which is known as market timing, dilutes gains for long-term shareholders and increases transaction costs.

In addition to the SEC., the New York attorney general, the Wisconsin attorney general, the Department of Justice and the Wisconsin Department of Financial Institutions were all part of the settlement.

Under the terms of the settlement, Strong Capital has agreed to disgorge US$40 million of profits and to pay a US$40 million penalty. The firm, which manages US$33 billion in assets, was accused of allowing some of its clients to engage in trading that hurt other investors, but that allowed Strong to obtain non-mutual fund business. The settlement includes a provision that none of the parties will admit or deny any wrongdoing.

Richard. Strong, who agreed to a lifetime ban from the securities industry, is the highest-ranking executive to be punished in the investigation, started by Attorney General Eliot Spitzer of New York, into the practices of four mutual fund companies.

The SEC also said that two other Strong executives had agreed to settle charges.

Anthony D’Amato, an executive vice president at Strong Capital Management, agreed to pay $US750,000 in disgorgement and civil penalties.

Thomas Hooker, Strong Capital’s compliance officer, agreed to pay $50,000 in penalties for failing to ensure that such trading had stopped after he learned it was taking place.