Putnam, the fifth biggest mutual fund in the United States, confirmed it has dismissed four fund managers for improper trading.
Mr Spitzer: Mutual funds use a 'double standard'
The four profited from short term trading in funds they managed, said Putnam spokeswoman Laura McNamara.
Although not illegal, quick-fire trading can damage the value of funds for long term investors, and breaches industry codes.
New York Attorney General Eliot Spitzer is investigating the practice.
Mr Spitzer's office has targeted corporate wrongdoing, particularly in the financial services industry, investigating Wall Street banks' investment advice in the dotcom boom, among other concerns.
Putnam spokeswoman Laura McNamara said: "I can confirm that the four investment professionals that were engaged in short term trading in funds in which they were involved are leaving Putnam."
Putnam's statement comes a day after brokerage Smith Barney, a unit of Citigroup, said it had fired four brokers for "inappropriate behaviour" involving short term trading.
The Massachusetts state pension fund, which is managed by Putnam, is to call an emerging meeting next week to discuss the revelations, Reuters news agency reported, citing a spokeswoman for the fund's Treasurer.
Putnam said the short-term trading was discovered in early 2000 and it had then warned the individuals involved.
"The behaviour of these individuals was detected nearly four years ago and Putnam addressed it then," said Putnam, which is owned by insurer Marsh & McLennan.
"We have and will continue to work closely with the regulators to assure that these matters are resolved in a way that is fair, reasonable and equitable and in the best interests of our clients," said Putnam.
It has declined to name the four traders who were dismissed.
Mr Spitzer said on 3 September that his office was investigating fraud in the mutual fund industry and believed some trading practices harming investors' interests.
Mr Spitzer said then that "the mutual industry operates a double standard".
"Certain companies and individuals have been the opportunity to manipulate the system. They make illegal after hours trades and improperly exploit market swings in ways that harm ordinary long-term investors," he said.