WASHINGTON (AP) – The New York attorney general who began the investigation into mutual fund trading abuses said Thursday his office probably would bring criminal charges against some companies in especially egregious cases.

As the industry scandal spread, senators voiced concern at a hearing about several financial firms that are alleged to have repeatedly committed fund trading and marketing violations and to have considered any penalties for such conduct as a cost of doing business.

Eliot Spitzer, the New York attorney general, was asked how he proposed to deal with the problem. “It’s fair to presume that there will be criminal cases brought,” he told the Senate Banking Committee. That could represent the “death penalty” for those firms, he said.

A criminal conviction against a company could put it out of business, as happened last year to giant accounting firm Arthur Andersen after it was convicted of obstruction of justice for destroying Enron audit documents.

Criminal charges would go beyond the spate of civil actions that Spitzer, other state regulators and the Securities and Exchange Commission have been lodging against big mutual fund and investment firms in recent weeks.

Spitzer and SEC Enforcement Director Stephen Cutler, who appeared with him, acknowledged yet played down their recent public differences over pursuit of fund trading abuses and the SEC’s civil settlement accord with big fund company Putnam Investments.

Cutler said it was time for the state and federal regulators to put their differences over the Putnam case aside. “We are working aggressively to clean up the mutual fund abuses that we’ve seen,” he said.

Cutler also defended the SEC’s record against widespread criticism for failing to detect the abuses now shown to be permeating the industry, saying that the agency’s program for inspecting fund companies was “severely underfunded” – with about 350 examiners to scrutinize some 8,000 companies.

“It’s certainly not been a lack of will,” he testified.

The regulators spoke the same day that Spitzer’s office and the SEC charged the founders of the Pilgrim-Baxter fund family, Gary L. Pilgrim and Harold J. Baxter, with improper trading of their funds to benefit themselves and friends at the expense of longer-term shareholders.

Those civil actions were the first time since the scandal became public in early September that fund company leaders had been directly charged in connection with illegal trading practices.

Responding to the scandal, the House moved quickly Wednesday to adopt legislation cracking down on mutual fund abuses and providing more information for the 95 million Americans – half of all households – who invest in mutual funds. But lawmakers of both parties agree that substantial work is needed before a final reform measure can be enacted.

Treasury Secretary John Snow, who had cautioned earlier in the week that Congress should be careful that any legislation not drive up the cost of investing, said Thursday that the administration supported the basic thrust of the House-passed bill.

“Mutual funds are an extraordinarily important part of the financial structure of this country,” Snow said in an interview with The Associated Press. “We must maintain trust and confidence in our capital markets and in the instruments of our capital markets like mutual funds.”

Asked whether the House measure was strong enough to keep people from pulling their money out of mutual funds, Snow replied: “We will have to see how it all plays out. But it seems to me that mutual funds will continue to be very important savings and investment vehicles.”

The legislation, adopted nearly unanimously, would impose new curbs on fund trading abuses, make directors on company boards more independent from fund managers and require companies to disclose more information to investors about fees and fund operations.

It still needs approval in the Senate, where several different versions have been proposed. No action is expected before next year.

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On the Net:

The bill, H.R. 2420, is available at http://thomas.loc.gov

Securities and Exchange Commission: http://www.sec.gov

AP-ES-11-20-03 1809EST