NEW YORK -- Henry Hill, by his account, started working for the Mob at age 12, has committed crimes ranging from loan sharking to drug dealing and was once an accomplice to murder.

After his 1980 arrest in a narcotics operation, Hill was questioned about his role in the largest airport heist in history, a $6 million theft from the Lufthansa cargo bay at John F. Kennedy International Airport. To save himself and his family from Mob associates, Hill became a government witness and was given a new identity. But he was flat broke.

So when Simon & Schuster offered $92,000 for his story, Hill agreed. Veteran journalist Nicholas Pileggi, hired by the publisher for an undisclosed sum, interviewed Hill at length and in 1985 produced the best-selling book "Wiseguy," the name given to Mafia foot soldiers such as Hill.

Now a New York state agency is demanding that Hill turn over his advance money and his share of royalties from the book, citing the state's so-called "Son of Sam" law. Simon & Schuster, the nation's largest publisher, has gone to court to challenge the statute as unconstitutional.

The law was passed 10 years ago, shortly before the arrest of New York City's infamous serial murderer David Berkowitz, also known as Son of Sam. The first of its kind in the country, the law was designed to prevent criminals such as Berkowitz from profiting by selling their stories. To date, 35 states have adopted similar victims' compensation laws.

The New York law requires anyone who has committed a crime in the state to turn over profits from book or movie contracts dealing with the crime. The state created a Crime Victims Board to hold the money in escrow for five years for distribution to victims who successfully sue for damages.

Since 1977, a half-dozen criminals have turned over money to the agency, most notably convicted bank robber John Wojtowitz (portrayed by Al Pacino in the movie "Dog Day Afternoon") and convicted murderer Jack Henry Abbott, author of "In the Belly of the Beast."

The victims board is also reviewing whether Jean Harris, in prison for the murder of "Scarsdale Diet" doctor Herman Tarnower, is required turn over proceeds of her book, "A Stranger in Two Worlds."

In a suit filed this month in U.S. District Court in Manhattan, Simon & Schuster charged that the statute violates the First Amendment and interferes with publication of certain works "by effectively prohibiting the compensation of a class of authors." Simon & Schuster Chairman Richard Snyder argued that under such a law, publishers could not have commissioned works such as former White House counsel John Dean's "Blind Ambition," his account of the Watergate affair.

"The application of this law to 'Wiseguy' makes clear the chilling effect it can have both on the right of free speech and freedom of the press," said Snyder, whose company has been ordered to recoup the money it paid to Hill.

Pileggi, who has been covering organized crime since 1956, said he agreed to write the book because he was "annoyed at the glorification of Mob life. It's a crummy, miserable, awful world, and these are not heroic figures but really slimy figures. You can't write that unless you have someone who will tell it to you."

Pileggi's advance and share of the royalties are not affected by the Son of Sam law. He said Hill, who at the time also was being debriefed by federal investigators, submitted to endless hours of interviews because "he was desperate for money. I don't think Henry would have cooperated with me if he wasn't getting paid. I don't write books for free. People do things for money."

Emanuel Gold, a state senator from Queens and author of the "Son of Sam" statute, called Simon & Schuster's stance "outrageous. They're only concerned with their pocketbooks. But this law does not touch the pocketbooks of publishers, agents or authors, only the criminal."

"What the publisher is saying is that if the money can be taken away, it's an inhibition of First Amendment rights," Gold said. "That is an obtuse argument."

Gold said the bill was written and passed in 48 hours "because we wanted the law on the books before {Son of Sam} was captured and because it makes absolute sense . . . . This bill was drawn very carefully, in my opinion, not to violate anybody's civil rights."

Pileggi questioned whether there are any victims in Hill's case, since he was involved in drugs and gambling and was never convicted. The author also said that crime victims do not need such a law because they can file civil suits for damages.

Lorraine Felegy, counsel to the board, disagreed. "The statute does not require us to identify victims first before pursuing the matter," she said. The law's definition of "criminal" also includes anyone who "admits the commission of crimes even if they are not prosecuted."

If no victims claim the money, Felegy said, it will be returned to Hill after five years.

New York attorney Martin Garbus, who represents several publishers, said, "You have to balance two factors: people like Berkowitz making a bundle of money and free press. I think free press is the more important issue. On the other hand, criminals can say the grosser the crime, the more money is in it for me, so instead of killing one person I'll kill seven."