NEW YORK (AP) _ A trading scandal that resulted in $138 million in investment losses for more than 700 colleges and universities has claimed another victim: The investment firm that lost the money.

First Capital Strategists, a 15-year-old money-management firm based in York, Pa., is closing after its major clients bolted following negative publicity over the big loss incurred by a rogue trader at the firm.

The impending shutdown comes as schools rush to hammer out an agreement with the firm and its four partners over at least partial restitution. The big loss, disclosed in early July, has eroded returns on endowment funds invested by the colleges and universities.

The organization that placed $1 billion of the schools' money with First Capital, the Common Fund of Westport, Conn., on Friday confirmed the shutdown and said it expected to soon reach a settlement.

``We're aware the members want to close their books for their year,'' said John Griswold, a senior vice president at the Common Fund, which dropped First Capital as investment manager for the funds shortly after the scandal broke.

However, he said, ``We believe that under any circumstances that any settlement will only be a small fraction of the total worth.''

First Capital, with about two-dozen employees, acknowledged in July that a trusted senior trader, Kent Ahrens, lost the endowment-fund money through risky investments that violated the investment guidelines of the Common Fund. Federal and state regulators are still investigating the matter, a person familiar with the probes said Friday.

Ahrens and his lawyer have refused to comment.

The Washington Post on Friday first reported the shutdown, saying it would take place by the end of the month. A woman answering First Capital Strategists' phone Friday referred calls to its Washington-based law firm.

Richard Morvillo, a lawyer for First Capital Strategists and its four partners, read a brief statement that in part said the firm ``may be expected to wind down its affairs in an orderly and an efficient manner.'' He would say no more about the shutdown.

Regarding a settlement proposal, he said, ``We have not had anything more than exploratory discussions at this juncture.''

The $138 million loss, which was revised up by $10 million from initial estimates, has resulted in slightly lower investment returns on endowment funds at 700 universities and colleges large and small around the nation.

The Common Fund has contributed $3 million from a reserve fund to lessen the impact of the losses. Still, up to 20 schools have dropped the Common Fund as their investment manager as a result of the scandal, Griswold said.

All told, the Common Fund manages about $20 billion in funds for more than 1,400 colleges and universities.

First Capital Strategists suspended Ahrens in early July and blamed him as the sole culprit in the scandal. First Capital said Ahrens confessed to covering up a ``small'' loss from a stock-trading transaction in 1992 that he had failed to hedge against investment risk.

But instead of reporting the loss, his employer alleges, Ahrens tried unsuccessfully over the next three years to cover it up with more transactions that only relentlessly magnified the losses.

The Common Fund partly blames faulty management controls for the snowballed loss.

``It seems that the trader was given too much authority over his strategy system,'' Griswold said.

One issue in First Capital Strategists' expected settlement proposal is the extent of liability of the firm's four partners. Generally, partners in partnerships such as First Capital are held liable in such disputes. The Common Fund has said that First Capital did not have sufficient insurance covering the losses.