I can't really suggest anything that you should do, I can only make an assessment, which I have done, of how the IRS might interpret that facts based on my reading of the tax code, many IRS publications, notices, revenue procedures and private letter rulings, as well as tax court cases involving IRAs and other types of retirement accounts.
The IRA custodian really should not have allowed this kind of mistake to be made. It might not hurt to ask the mutual fund company how they could have allowed this mistake to happen and what they intend to do to fix it.
One other concern is that this could be viewed as a prohibited transaction that would disqualify the IRA, causing the IRA to cease to be an IRA and the account to be distributed. However, I believe that the IRS might allow this sort of prohibited transaction to be 'cured' with the proper corrective action, I just don't know for sure what that is.
