WASHINGTON – Senators of both parties lashed out Monday at the Securities and Exchange Commission for what they said was its failure to detect abuses in a mutual fund trading scandal enveloping the $7 trillion industry with a traditionally clean image.

SEC officials and state law enforcers, who are investigating and prosecuting cases, drew a picture at a Senate hearing of abuses so widespread in the industry and among brokers that Sen. Peter Fitzgerald, R-Ill., was moved to ask: “We’re talking about serious, wholesale criminal violations coming to light, aren’t we … ?”

Stephen Cutler, the SEC’s enforcement director, told the committee he wanted to “emphasize that we will aggressively pursue those who have violated the law and injured investors as a result of illegal late trading, market timing, self-dealing or any other illegal activity we uncover.”

The agency’s investigation is “continuing on multiple fronts,” said Cutler, who presented a survey detailing frequent abuses. These included one finding that a quarter of the nation’s largest brokerage houses helped clients illegally trade mutual funds after hours.

Sen. Susan Collins, R-Maine, head of the Senate Governmental Affairs Committee, said she found it shocking that the trading practices, “which benefit a select group of individuals at the expense of the vast majority of mutual fund investors, continue.”

“I question why the Securities and Exchange Commission … has failed to detect these practices, to impose appropriate restrictions on them, or to penalize those who appear to be misusing investors’ money,” Collins said.

And Sen. Joseph Lieberman, D-Conn., a committee member, told SEC Chairman William Donaldson in a blistering letter that the agency “was far too late to the table in addressing these problems.” He requested detailed information on the SEC’s response and plans.

Companies must be forced to pay back to investors the hefty fees received for managing mutual funds while they allowed fund trading abuses to occur, New York Attorney General Eliot Spitzer told the hearing.

“This number will be big. It will impose pain, and it should,” he said.

Management fees reaped by mutual fund companies totaled more than $50 billion last year, Spitzer said.

Repayment of management fees would be in addition to restitution to shareholders of profits made from alleged improper trading, he said.

Meanwhile, the SEC and the National Association of Securities Dealers, the brokerage industry’s self-policing group, announced actions related to overcharges of large-scale investors in mutual funds, who could get tens of millions of dollars in refunds from brokers who failed to give them the discounts on commissions that they were owed. Among the actions is a directive to nearly 450 brokerage firms to notify customers who purchased certain fund shares since Jan. 1, 1999, that they may be due refunds.

In the latest jolt, Lawrence J. Lasser is stepping down as chief executive of Putnam Investments following the filing of civil fraud allegations against the mutual fund company and decisions by several big state pension funds to take money out of the firm’s funds.

On Sunday, Strong Mutual Funds said its board chairman, Richard S. Strong, had resigned amid multiple investigations into his personal trading of the company’s funds. Last week Strong acknowledged trading in some of the Menomonee Falls, Wis., firm’s funds and said he would reimburse investors for any losses they may have sustained because of his trades.

Strong is under investigation by the SEC, Spitzer’s office and Wisconsin financial regulators for alleged improper trading that officials say may have benefited him and his friends and family.

Spitzer also has criticized the SEC. “Heads should roll” at the federal agency, he told The New York Times recently.

He said at Monday’s hearing that his office and the federal agency have cooperated and will continue to do so. “We will work hand-in-glove with them as we go forward,” he testified.

Eclipsed for months by Spitzer in the pursuit of conflicts of interest and abuses by Wall Street investment firms, the SEC jumped into the mutual fund investigation in early September. Dozens of firms have been subpoenaed, including Fidelity Investments, Janus Capital Group, Morgan Stanley and Vanguard Group.

It was Spitzer who first raised the charge that preferential trading deals for big-money customers at mutual fund companies could be siphoning billions of dollars from ordinary investors.

In the latest and sharpest enforcement action, the SEC and Massachusetts regulators brought civil fraud charges last week against Putnam Investments, the nation’s fifth-largest mutual fund company.

Two senior investment managers at Putnam were charged with using improper trades to profit personally from mutual funds they oversaw. Boston-based Putnam denied any wrongdoing but confirmed that four money managers had been fired and reported that its chief executive is stepping down.

Several investment companies, including Janus and Bank of America, have pledged to make restitution to mutual fund investors who lost money through alleged improper trading.

More broadly, the scandal has tarred the reputation of mutual funds, traditionally viewed as a safe, conservative investment. Some 90 million people have money in U.S. stock mutual funds; half of all American households invest in them.

In the process, a political dispute has broken out between Spitzer and SEC officials. They already had sparred last summer over legislation to preclude states from signing settlements with Wall Street firms that mandate business changes.