The mutual fund business in India is getting messier. Over the weekend four top officials of the $12 billion Unit Trust of India were arrested on charges of criminal conspiracy, fraud and misappropriation of public funds. The charges carry a maximum sentence of 10 years in prison. Among those arrested was P.S. Subramanyam, former chairman of the fund. A judge ordered the quartet held in police custody until July 27.

The charges specify that the official purchased shares of an Indian software firm (Cybersapce Infosys) at an inflated price against the advice of the fund's analyst team. That transaction resulted in an alleged $7 million loss to the fund when the firm's shares plummeted to $0.025 per share from $19.80.

The scandal erupted when the fund was shuttered to redemptions causing the Indian stock market to tank. Last week officials said that limited redemptions for the fund would be allowed starting in August.

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