In the mutual fund scandal’s largest penalties so far, merger partners Bank of America Corp. and FleetBoston Financial Corp. agreed Monday to pay $515 million and reduce fees by $160 million over allegations they allowed abusive fund trading.

As part of the settlements with the federal Securities and Exchange Commission and New York Atty. Gen. Eliot Spitzer, eight trustees of Bank of America’s Nations Funds also will leave the board within a year. The company would not identify the specific trustees.

Officials have said fund directors would be held responsible in the scandals that have rocked the $7.5 trillion industry, but this is the first case that has resulted in action against trustees, said Mark Schonfeld, associate director of the SEC’s Northeast regional office.

This agreement marks a new phase in the effort to clean up the mutual fund industry. These directors clearly failed to protect the interest of investors, Spitzer said in a statement. The departure of these board members should sound an alarm for all those who serve in similar capacities.

Bank of America spokesman Robert Stickler said the firm agreed to improve oversight of the funds, and to implement a mandatory retirement age and policies on independence and rotation of trustees.

It’s not a guarantee that this won’t happen again, or that something like this won’t happen again, Schonfeld said. But, he added, I think it will make the governance and compliance process a lot stronger.

Bank of America was accused of allowing the Canary Capital Partners hedge fund to engage in market timing, with the trustees exempting it from a 2 percent redemption fee instituted on sales of international funds held less than 90 days. Such fees are designed to eliminate in-and-out trading that raises costs for other investors.

Bank of America agreed to pay $250 million in restitution and $125 million in fines.

The size of the dollar amount is the most significant aspect of the case, Schonfeld said. It reflects just how serious [Bank of America’s] misconduct was.

Kenneth Lewis, Bank of America’s chairman and chief executive, said the company has fired several employees since the allegations surfaced. We have consistently said that the actions of a few individuals and what occurred is not representative of the way Bank of America does business, and we have no tolerance for actions that violate our values, he said in a statement.

The brokerage arm of Bank of America also was accused of allowing traders to engage in market timing and other improper trading of mutual funds operated by other companies. About 90 percent of its restitution will go to shareholders of those funds.

The Columbia mutual funds of FleetBoston were accused of allowing preferred customers to engage in short-term trading, even though they said they prohibited such activity.

FleetBoston, which agreed in October to be acquired by Bank of America in a $47 billion deal that will create the nation’s third-largest bank, agreed to pay $70 million in restitution and $70 million in penalties.

Any activity which disadvantaged customers is offensive, even though limited to a small number of individuals, FleetBoston Chairman and CEO Chad Gifford said in a statement. Columbia mutual fund shareholders will be repaid by Fleet as part of the settlement for any damages incurred.

In a separate agreement with Spitzer, the two firms agreed to reduce fees charged to investors by a combined $160 million over five years.

Spitzer has hammered away at what he considers excessive fees and has used his cases to reduce them, including a deal with Alliance Capital Management that is to cut fees by $350 million.

The SEC, in contrast, has insisted that enforcement actions are not the appropriate vehicle to lower fund fees.

The Bank of America case is the first settlement with a mutual fund accused of allowing Canary Capital Partners to engage in market timing and late trading, in which transactions are conducted after a fund’s price has been set for the day.

In September, Canary reached a $40 million settlement with Spitzer over allegations of market timing and late trading. The other funds Spitzer implicated in Canary’s activities—those of Chicago-based Bank One Corp. Wisconsin-based Strong Capital Management and Denver-based Janus Capital Group Inc.—have not been charged.

Last week, Bank of America agreed to pay $10 million to settle SEC allegations that it failed to keep and provide adequate records in an investigation of securities trading. It is the largest record-keeping fine ever imposed by the SEC.