US investigators have uncovered fresh evidence of widespread irregularities in the $7 trillion mutual fund industry.
Middle America relies on savings in mutual funds
The Securities and Exchange Commission, the US financial services watchdog, told a Congressional committee investigating the industry that one in ten of the country's top mutual funds may have been involved in improper trading.
The SEC also told the committee that up to a quarter leading brokerage firms may have allowed customers to improperly trade mutual fund shares.
The funds and brokerages are accused of so-called late trading, where investors buy or sell mutual fund shares after hours at their closing price.
Any after hours trading is supposed to be done at the following day's price.
The revelations come amid a crackdown on "market timing," where investors take advantage of out of date prices through quick-fire trading in mutual fund shares.
Although not illegal, market timing damages the value of funds for long-term investors, and breaches industry codes.
Concern over sharp practices in the mutual fund industry has been fuelled by fears that ordinary savers could lose out.
About half of all US households have put money into mutual funds.
According to some estimates, market timing costs individual investors between $5bn and $6bn a year.
Republican Senator Peter Fitzgerald on Monday described the mutual fund industry as "a $7 trillion trough from which fund managers and other insiders are steadily siphoning off an excessive slice of the nation's household college and retirement savings."
New York Attorney General Eliot Spitzer, who gave evidence to the committee, said mutual fund companies found guilty of illegal trading should be forced to refund their clients' fees.
"We will not permit them to retain the fees they received in violation of their fiduciary duty," he said.
"They're going to get the comeuppance they deserve based on their years of failing to police themselves."
Mr Spitzer, who last year led a crackdown on alleged abuses by Wall Street investment banks during the dot.com boom, launched an investigation into the mutual fund industry in September.
Also on Monday, Lawrence Lasser, the head of fifth ranked mutual fund Putnam Investments, resigned one week after two former Putnam managers were charged with securities fraud.
Mr Lasser is the most high ranking industry figure to lose his job in the current investigation.