Pentagon Capital Management, headed by Lewis Chester, a contemporary of the prime minister at Oxford, was found to have engaged in late trading in mutual funds.
Investors in the fund, which has been winding down its assets since 2008, have included media tycoon Richard Desmond, former Labour treasurer Lord Levy, and property magnate Gerald Ronson.
The ruling, handed down by Judge Robert Sweet in Manhattan, will fuel scrutiny of the Conservatives' ties to big business and City financiers.
The Securities and Exchange Commission (SEC) issued charges against Pentagon in April 2008 after former New York Attorney General Eliot Spitzer launched a crackdown on trading in mutual fund shares.
Handing down his opinion, Judge Sweet ruled that Pentagon had "intentionally and egregiously" violated federal securities laws by engaging in late trading – or trading in mutual funds after the market close. "This scheme was broad ranging over the course of several years and in no sense isolated," he said. However, the judge found in favour of Pentagon on a second charge of market timing abuse.
Frank Razzano, a lawyer working on behalf of Pentagon, said: "We are grateful for Judge Sweet's finding that no illegal market timing took place. We are disappointed by his late trading conclusion. We shall be appealing."
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