In the latest round of financial-fraud allegations to erupt, two money managers have been accused of misappropriating at least $553 million, and using it to fund a lifestyle of lavish homes, horses and even an $80,000 collectible teddy bear.

The two men, Paul Greenwood, 61 years old, of North Salem, N.Y., and Stephen Walsh, 64, of Sands Point, N.Y., were arrested by Federal Bureau of Investigation agents and face criminal charges of conspiracy, securities fraud and wire fraud by the U.S. Attorney for the Southern District...