NEW YORK (CNN/Money) - State and federal regulators Tuesday sued Invesco Fund Group Inc. and its CEO, charging they allowed numerous hedge funds to make improper trades in the company's mutual funds.

New York State Attorney General Eliot Spitzer said Invesco and its CEO, Raymond Cunningham, engaged in a "massive mutual fund timing scheme.'' And Colorado Attorney General Ken Salazar said his office has filed suit against the fund, charging it with violations of the Colorado consumer protection act.

The Securities and Exchange Commission also filed civil charges against Invesco and Cunningham. Invesco is owned by the British money manager Amvescap PLC, which had $345 billion of assets under management as of Sept. 30.

The SEC suit, filed in federal court in Denver, accuses Invesco of engaging in a fraudulent scheme in which it "secretly accepted funds from market timers to enhance the management fee."

Spitzer said the fund exempted favored institutional clients from the company's publicly stated policy of limiting shareholders to four mutual fund trades annually and that its favored clientele, known as "Special Situations" clients, had permission to engage in extensive market timing.

"The evidence in this case speaks for itself," Spitzer said in a statement. "Top managers knew market timing was harming buy-and-hold investors but they condoned and facilitated it because it was a lucrative source of management fee revenues."

In one e-mail obtained by Spitzer, a senior executive noted: "I know [market timers] are costing legitimate shareholders significant performance ... This is not good business for us, and they need to go."

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Another e-mail released by his office alleges that one executive wrote: "[Market timing] is killing the legitimate shareholders of [the Dynamics and Technology] funds."

A spokesman for Amvescap, which made the investigation public last week, said the company would fight any charges filed against Invesco or its employees.

"Invesco Funds Group has not engaged in any wrongful conduct," an Amvescap spokesman told CNNfn. "Any charges that may be filed against Invesco Funds Group or its employees will be vigorously contested."

Unlike the trading of mutual funds after the market closes, another practice being probed by regulators, market timing is not illegal. But fund companies that publicly discourage investors from engaging in the practice and then allow selected investors to do it may be in violation of their fiduciary duties.

Invesco is the latest asset manager to be targeted in the rapidly growing probe. Last week regulators filed criminal charges against three top executives at pension fund trustee Security Trust Co., and ordered the Phoenix-based company to dissolve its business.  

--from staff and wire reports