NEW YORK (CNN/Money) - New York State Attorney General Eliot Spitzer's investigation into unfair and sometimes illegal trading practices by mutual funds is likely to spread beyond the issues of market timing and late trading, Spitzer said Monday.

In testimony before a Senate subcommittee, Spitzer said mutual funds' directors failed to negotiate the lowest possible advisory fees paid by fund shareholders and turned a blind eye when there were strong signals of market timing taking place in their funds, largely because the directors themselves are often affiliated with the advisory companies running the funds.

By one set of estimates, Spitzer suggested their lax fee stance may have cost individual investors up to $10 billion a year.

"The directors are supposed to be the stewards of their shareholders' investments, but too often act at the behest of the advisory and management companies that run the funds' day-to-day operations," Spitzer said in his prepared remarks to the Senate Subcommittee on Financial Management, the Budget and International Security.

Mutual fund industry experts have said that market timing and late trading activities have resulted in relatively small damages to individual investors -- estimates range from less than 1 percent to about 2 percent in returns. But Spitzer said the funds directors' failure to negotiate lower management and advisory fees perhaps caused the greatest cost to investors. According to him, mutual funds paid more than $50 billion in advisory fees and more than $20 billion in management fees in 2002.

YOUR E-MAIL ALERTS Market timing Eliot Spitzer Mutual Funds or Create your own Manage alerts | What is this?

Citing a study from 2001, Spitzer said mutual funds often pay advisory fees that are a quarter of a percentage point higher than the fees paid by pension funds to the same advisory company. This could translate into a cost of almost $6,000 for every $100,000 invested over 10 years, assuming an annual return of 8 percent, Spitzer said. Industrywide, a one-quarter of a percentage point reduction in advisory fees would result in annual savings to individual investors of $10 billion, he said.

Adding that his office's investigation is continuing, Spitzer said it could uncover other abusive practices as well, including undisclosed incentives for brokers to sell certain funds, or types of fund shares to investors.

Spitzer's sweeping investigation, which became public two months ago, has already resulted in a number of resignations by mutual fund executives and hedge fund traders. Putnam CEO Lawrence Lasser, who resigned Monday, and Strong chairman Richard Strong, who quit Sunday, are the highest profile officials to lose their jobs as a result of the investigation.

The investigation begun by Spitzer has been joined by probes from the Securities and Exchange Commission and Massachusetts regulators. (For more details on the fund probes, click here.)