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Federated Investors Inc. agreed on Monday to pay $100 million to settle regulators' allegations of illegal mutual-fund trading, one of the largest such settlements in a two-year probe of the mutual fund industry.

Federated, without admitting or denying guilt, agreed to pay $45 million in civil penalties and $35 million in restitution to investor clients, according to an agreement with the Securities and Exchange Commission and New York Attorney General Eliot Spitzer. Federated also agreed to cut client fees by $20 million over five years.

The regulators since 2003 had investigated Federated for illegally trading in mutual funds after stock and bond exchanges closed and for unusually frequent trading. Both practices, which occurred between January 1999 and March 2003, hurt the value of long-term investors' fund shares.

"(T)hese settlements close a difficult chapter in the company's history," Federated CEO J. Christopher Donahue said in a letter to shareholders yesterday. He also said terms of the settlement have "strengthened our resolve to deliver a culture of compliance to fund shareholders."

Federated agreed to hire a senior compliance officer and a consultant to determine how to reimburse clients for share losses.

How much money each client would get and when payments would be made was not yet clear, said Federated spokesman J.T. Tuskan.

The Pittsburgh-based company is the nation's fifth-largest manager of mutual funds. It manages more than $207 billion of investments held in 138 Federated funds and separately managed accounts.

The firm employs nearly 1,700 people, most of whom work in the Downtown tower bearing the Federated name.

"Just being involved in this scandal hurts their reputation and ability to attract new business going forward," said Kerry O'Boyle, an analyst for Morningstar Inc., the Chicago-based mutual-fund rating service.

"This does give them a measure of closure on the thing," O'Boyle said. "But I'm a little disappointed, because the SEC and the New York (attorney general) seemed to make a pretty strong case, but we didn't see anyone named who was behind this."

Federated is one of many mutual-fund firms to settle trading charges since Spitzer began his case in 2003 against Canary Capital Partners, a giant hedge fund firm. Such firms manage billions of dollars through sophisticated investment strategies, including mutual funds.

Federated allegedly set up market-timing arrangements with Canary Capital and two other unnamed hedge fund firms involving six U.S. -- and one off-shore -- Federated funds. The firm also allegedly processed trades after hours for an unnamed Texas hedge fund, said an SEC statement.

After-hours trading occurs when fund brokers illegally buy or sell fund shares after 4 p.m., when U.S. stock exchanges close. Such trades create illegal gains by trading on fund-related news released after the markets close.

Market timing is when brokers buy and sell fund shares frequently for major investors when market prices tick up or down. But such rapid-fire trading hurts long-term fundholders because the multiple trades drive up the cost of managing the fund.

The investigations of Federated and 13 other fund firms began more than two years ago and resulted in more than $3.3 billion in penalties and restitution in the roughly $8 trillion industry.

"With this agreement, virtually the entire mutual fund industry has now sworn off improper trading practices and agreed to compensate investors who were harmed," Spitzer said of the settlement.

For example, Invesco Funds Group, of Mountain View, Calif., settled market-timing allegations by the SEC and Spitzer by paying $225 million in September 2004.

Banc One, of Columbus, Ohio, agreed to pay $50 million in June 2004 to settle similar SEC allegations. Pimco, a bond fund manager in Newport Beach, Calif., also paid $50 million to settle similar allegations in September 2004.

Federated already had set aside $72 million in reserves in anticipation of a regulatory settlement, said a spokesman. The firm also has paid out $8 million of the $35 million in client restitution.

Federated's stock closed at $35.62 a share yesterday, down 84 cents.

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