Mr Spitzer is conducting his own investigation into mutual funds

Charges were brought by the Securities and Exchange Commission (SEC) and New York Attorney General Eliot Spitzer.

Mr Spitzer's office filed civil charges against Gary Pilgrim and Harold Baxter for allowing certain clients to make what it says are illegal trades of shares in the PBHG fund family.

The moves are the latest in the probe into irregular trading in mutual funds.

SEC allegations

Mr Pilgrim, 63, and Mr Baxter, 57, who founded the PBHG fund family in 1982, resigned last week from top executive positions amid an internal probe into their investments.

"The allegations in our complaint describe a course of conduct that was unethical, illegal and just plain wrong," said Stephen Cutler, the SEC's enforcement director.

PBHG funds, a family of 18 mutual funds, is part of the $7.4 billion in assets managed by Pilgrim Baxter as of September 30.

The rush to crack down on mutual funds, which handle the savings of an estimated 54 million American households, follows revelations of widespread irregularities, prompting many consumers to withdraw their money.

Some funds have already been brought to book, with Morgan Stanley agreeing last week to pay $50m to settle an SEC investigation into its mutual fund business.

Putnam Investments, a leading mutual fund, has also struck a deal with the SEC, although a settlement payment has not yet been set.

Mr Spitzer is conducting his own investigation into the mutual funds industry.