Carifa, president and chief operating officer of the New York- based firm, and Laughlin, chairman of mutual-fund distribution, were asked to resign because they oversaw a unit that ``allowed inappropriate market-timing transactions,'' Chief Executive Officer Lewis Sanders said in a statement.

The executives are the second-most senior officials to lose their jobs since New York State Attorney General Eliot Spitzer initiated the investigation of the $7 trillion mutual-fund industry on Sept. 3. Putnam Investments in Boston last week removed Lawrence Lasser, the company's CEO for 18 years.

Spitzer has been spearheading the inquiry of special trading privileges given to some customers, mainly hedge funds, by mutual fund companies. The U.S. Securities and Exchange Commission has broadened the probe to include a review of whether money managers channeled sought-after shares of initial public offerings to their hedge funds rather than to funds that charge lower fees.

``There is a high likelihood that Alliance will face sanctions and penalties,'' Sanders said in the statement. He wasn't more specific, except to say the company plans to reimburse investors hurt by any improper trading.

Broadening Inquiry

Alliance, a unit of France's Axa SA that oversees about $440 billion of assets, would be the second mutual fund company charged by regulators. On Oct. 28, Putnam and two former money managers were charged by Massachusetts regulators with improper fund trading. Six days later, Lasser lost his job.

Carifa had worked at Alliance since 1971 and was president and chief operating officer for the past 10 years. He was paid $2.3 million last year. His compensation peaked in 2000 when he received $275,000 in salary, plus a $9.6 million bonus and $2.5 million in other compensation, according to an SEC filing.

Laughlin joined Alliance in 1987 and served on the company's executive committee as recently as March, the filing said.

Shares of Alliance were up 25 cents at $32 in New York Stock Exchange composite trading at 10 a.m.

Former employees at companies including Bank of America Corp., Fred Alger Asset Management Inc. and Prudential Securities Inc. also face allegations of improper fund trading. The disclosures have prompted U.S. lawmakers to push for rules to tighten oversight of an industry responsible for the savings of about 95 million Americans.

Spitzer's Inquiry

Strong Capital Management Inc., led by Richard Strong, and Security Trust Corp., in addition to Alliance, are among the firms being investigated by the SEC and Spitzer.

More than two dozen brokers at a J.P. Morgan & Chase Co. unit are being probed by regulators over mutual fund sales, the New York Times reported, citing an unidentified regulatory official. J.P. Morgan spokesman Joseph Evangelisti declined to comment.

Alliance hasn't said whether clients are withdrawing funds on concern about the inquiry.

Putnam has been losing clients including state pension funds in Massachusetts and Iowa since the company, a unit of Marsh & McLennan Cos., was charged by Massachusetts regulators and the SEC. Marsh & McLennan said Putnam's assets under management have declined by $14 billion, or 5 percent, since the end of October.

The dismissals at Alliance probably were caused in part by concern about client redemptions, said Thomas Buynak, a money manager at National City Corp. in Cleveland, which oversees $38 billion for clients.

`Damage Control'

``Alliance probably looked at Putnam and looked at the outflows,'' Buynak said. ``They are doing damage control.''

Alliance spokesman John Meyers declined to comment. Alliance funds were hurt by client defections last year when the company was among the largest shareholders of Enron Corp and WorldCom Inc. before their bankruptcies.

``We have one clear objective: to restore the trust on our firm that has been damaged by these unfortunate developments,'' Sanders said in Alliance's statement.

Gerald Lieberman, who worked at Fidelity Investments and Citicorp during the 1990s before joining Alliance, will replace Carifa as chief operating officer, the company said in its statement. Marc Mayer, Alliance's head of institutional investment management sales and marketing, will succeed Laughlin.

David Steyn was appointed head of marketing and sales for Alliance's institutional investment unit to fill Mayer's post.

Trading Abuses

Regulators investigating mutual funds have identified two types of trading abuses. Both take advantage of the fact that fund shares are priced once a day at 4 p.m. New York time even though the securities they own may trade continuously around the world.

Alliance suspended money manager Gerald Malone and hedge fund executive Charles Schaffran on Sept. 30 for alleged ``conflicts of interests'' in short-term trading of funds. Malone was involved in managing the $3 billion AllianceBernstein Technology Fund since 1992. He was replaced on Oct. 1 by Janet Walsh.

Schaffran allegedly arranged for Las Vegas-based Security Brokerage Inc. to make short-term mutual fund trades, the Wall Street Journal has reported, citing unidentified sources.