As part of the settlement, the $207 billion money manager will cut the fees it charges in some of its mutual funds by $4 million over the next five years. The 50-year-old firm will also pay restitution to harmed investors as part of the agreement.
Federated has been in settlement talks since January and is the 14th firm to pay for either illegal market timing or late trading practices since the scandal broke in 2003.
The allegations brought by Spitzer and the SEC date back to 1998.
Among the firms that Federated allegedly allowed to trade late in its funds were Veras Investment Partners and Canary Capital, two hedge funds that have implicated in other late-trading cases.
When the investigation broke in October of 2003, Federated said that the responsible parties did not have a clear understanding of industry sale practices. Federated started remedial employee education regarding late trading a month later.
Federated CEO Christopher Donahue said in a statement that the dual settlement and internal changes demonstrate the company's "dedication to safeguarding the investments of our clients."