First Boston Derivatives Loss Tip of Iceberg? : Investment: Firm’s $40-million deficit could be repeated by any asset manager, analysts warn.

CS First Boston Investment Management’s losses on derivatives may be only the tip of the iceberg for institutional money managers.

The asset-management firm lost $40 million on derivatives linked mostly to currency rates and reimbursed the accounts of three big institutional investors for the loss, people familiar with the firm’s actions said Tuesday. They declined to be identified. First Boston also recently fired the portfolio manager responsible for trading the derivatives and accepted the resignation of several senior executives.

“The problem is that for months somebody wasn’t telling somebody else that they were using derivatives,” said Eileen Sanders, an analyst at Morningstar Inc., a Chicago firm that tracks fund managers.

That’s a situation that may soon be repeated elsewhere in the asset-management business. “There are bound to be more problems emerging in the next couple of months” at other firms, Sanders said.

Derivatives have been under scrutiny lately because of losses suffered by corporations, hedge funds and money market funds that invested in them. BankAmerica Corp. last month said it spent $67.9 million to cover losses in its Pacific Horizon Prime Money Market Fund and its Pacific Horizon Government Fund.

Partly as a result, regulators and lawmakers have been looking closely at the $14-trillion derivatives market this year. There are two bills pending in the Senate and another two in the House, all of which would boost oversight of the largely unregulated market.

First Boston’s loss came on a variety of derivatives, some of which were tied to the price of currencies, said sources familiar with the situation. A First Boston spokesman declined to comment on the investments.

Keith Walsh, a portfolio manager who was fired by the unit of Swiss bank CS Holdings, used derivatives to boost the amount his investments would gain for every change in the value of certain currencies.

Wall Street firms can concoct customized derivatives that gain, or lose, money much faster than the asset to which their value is tied. Walsh could not be reached for comment.