updated 2/26/2004 11:27:00 AM ET 2004-02-26T16:27:00

A top investigator for the New York attorney general's office told mutual fund representatives Thursday that fund companies that step forward and acknowledge violations of securities laws will fare better than those that do not.

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Speaking at a conference on mutual fund reform, David Brown, chief of the Attorney General's Investment Protection Bureau, said many fund companies have not been forthcoming in the state's investigation of illegal trading, broker relationships and unfair fees.

"I'm very disappointed in the lack of proactivity," Brown told the audience of more than 200 fund company representatives gathered at a New York hotel. "We're finding many companies are waiting in the weeds, hoping we overlook them as we conduct our investigation."

Despite concerns by some in the audience that companies would be heavily penalized even if they came forward, Brown said firms would get credit for disclosing violations, earning leniency in any penalties sought by his office.

Brown said his investigation of mutual fund practices could spread beyond fund companies to banks and law firms that aided in illegal trades, designed to artificially boost fund prices.

He added that New York Attorney General Eliot Spitzer supports curtailing inflated fund fees, noting that individual investors are often charged widely varying fees for similar products, and that institutional investors often pay less for mutual funds than individuals.

"People don't do a lot of research. They're lead to funds by a broker," Brown said, noting that some fund companies paid brokers to push particular funds even though fees on another fund may have been lower.

Brown said his investigation of the mutual fund industry is continuing in cooperating with the Securities and Exchange Commission.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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