Alliance Capital Management is to cut its fees by $350m (€282m) as well as paying $250m in penalties after settling with regulators for alleged illegal trading of mutual funds - the largest financial settlement paid by an asset management firm.

Alliance, the US investment and research firm, will cut its mutual fund fees by 20% in January 2004 and freeze them for the next five years. It will also pay a $100m fine and $150m in disgorgement to investors.