2 Fund Firms Set Aside Money for Probe Costs

Amvescap and Federated Investors Inc., two of the world’s biggest money management companies, set aside a combined $50 million Tuesday to cover initial costs from the government investigations of improper mutual fund trading.

European money manager Amvescap, which runs the AIM and Invesco funds, took a fourth-quarter charge of almost $30 million. Pittsburgh-based Federated said it had allocated $20 million to help reimburse investors. The expenses exclude penalties that may be sought by state and federal regulators.

“These numbers will get a lot higher when regulatory settlements are added in,” said Geoff Bobroff, an independent industry consultant in Rhode Island.

Alliance Capital Management Holding agreed in December to pay $250 million, the largest penalty for a mutual fund company, to settle allegations that executives allowed trading by hedge funds and brokers that hurt returns for long-term investors. Sun Life Financial Inc. set aside almost $160 million for a possible settlement at its MFS Investment Management unit in Boston.

Federated also said Tuesday that it had fired an employee allegedly involved in improper trading of its mutual funds and set up a $7.6-million fund to reimburse investors.

The company said it had disciplined five others -- two portfolio managers and three officers -- for their involvement, but would not disclose the sanctions or the names of the employees.

Although Federated is being probed by regulators, the results of those investigations haven’t been announced, making it difficult to assess the company’s findings, an analyst said.

“Until some third party comes in or a regulatory agency, we’re not really sure that we’re getting the full story here,” said Kerry O’Boyle, a mutual fund analyst at Morningstar Inc.

O’Boyle said he would like to see Federated identify employees who have been sanctioned. He also said the company should impose measures taken by other fund managers, such as charging redemption fees for short-term trades, to guard against improper trading.

Shares of Federated rose 71 cents Tuesday to close at $31.91 on the New York Stock Exchange.