NEW YORK (CNN) - When the Wall Street scandals were in the news, some people I know said they were glad they were invested in mutual funds because of their squeaky clean image.

Now, that reputation has been tarnished by the Canary Investment Management hedge fund mess. And the likelihood of a more wide-ranging investigation into mutual fund practices may very well make it even worse.

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Once again, New York Attorney General Eliot Spitzer has beaten the Securities and Exchange Commission to the starting gate in uncovering securities industry wrongdoing.

He reached a $40 million dollar settlement with Canary and its managing principal, Edward Stern, and although he didn't take any action against the four mutual fund companies involved in the case, he said future charges will almost certainly be brought against them, and perhaps others.

With Spitzer's penchant for the spotlight, and the SEC's resentment of his headline-grabbing activities, making that agency more anxious to get into the act, I think we're going to see a lot more dirt uncovered about the relationship between mutual funds and institutional investors.

The announcement of the Canary settlement cited Bank of America, Bank One, Janus Capital and Strong Capital Management, all of which manage families of funds.

Bank of America, and its Nations Funds group, came in for the most attention. And its relationship with the manager of the Canary hedge fund is troubling to me.

In addition to running the hedge fund, Stern is a member of a wealthy family with diverse interests. There's a suggestion that units of Bank of America were willing to make special arrangements with him -- deals that Spitzer said were illegal -- at least partly in the hopes of getting more business from the Stern family.

That raises the question in my mind about whether big financial institutions, with many types of operations, including banking and investing, are cutting corners -- or worse -- to win business. This could be a fruitful path for regulators at both the state and federal levels to follow.

That's in addition to their investigation of the mutual fund industry, which I expect them to pursue vigorously. My bet is that there will be more fireworks ahead. And, sadly, that means a further erosion of investor confidence.