(MONEY Magazine) – In a highly unusual move, management company Baron Capital has reimbursed its Baron Asset fund for a bad trade.

Hurt by the economic crisis in Asia, a big market for bowling equipment, AMF Bowling has tumbled from a high of more than $30 in April 1998 to a recent $4.50. Baron Asset's 10.2 million shares of AMF dragged the fund's returns down four percentage points in 1998. "It's our worst-performing stock ever," laments Morty Schaja, Baron Capital's chief operating officer.

But a strange thing happened last fall. While the stock was in mid-tumble, Baron Asset bought 650,000 shares--from a private account that Baron manages. Schaja says the private client needed to liquidate some holdings, and at its humbled price AMF looked like a good buy for Baron Asset. But at the time of the purchase, two other Baron funds, Growth & Income and Small Cap, were selling AMF. Schaja says that Growth & Income, managed by Ron Baron, needed losses to offset capital gains, and that Small Cap manager Cliff Greenberg simply soured on the stock.

"There are inherent conflicts in transactions between mutual funds and private clients of the same adviser," says John Coffee, a professor of securities law at Columbia University Law School. "The temptation is to use the fund as a dumping ground to accommodate the private client."

Schaja insists that's not what happened here. But when Internet magazine TheStreet.com raised questions about the transactions, Baron Capital decided to reimburse the Asset fund for $1.6 million--the amount by which the shares had fallen since the trade. "When it came to our attention, we looked at it and said, 'Boy, this doesn't look good,'" says Schaja. "We wanted to do the right thing."

--LISA REILLY CULLEN