Spitzer Takes Aim at Funds

Updated from 3:11 p.m. EDT

The mutual fund industry, already under fire for failing to disclose hidden fees on investors, is embroiled in a new scandal after a hedge fund settled charges it racked up tens of millions of dollars by illegally trading in mutual fund shares.

Prosecutors indicated the investigation is far from over and sources told TheStreet.com late Wednesday that a large number of mutual fund companies have been told by Spitzer's office they must preserve documents that could be pertinent to the probe.

At a noon press conference Wednesday, New York Attorney General Eliot Spitzer announced a $40 million settlement with a New Jersey hedge fund over allegations that it engaged in illegal trading in mutual fund shares sold by a number of Wall Street firms and banks. ...