Wall Street regulator-cum-gadfly Eliot Spitzer promised Friday morning that the next chapter of Wall Street reform is just getting under way, as the New York State attorney general pushes for a shake-up among mutual fund boards of directors.

Speaking at the Hyatt Regency San Francisco, Spitzer displayed characteristic bluntness in dissecting the failings of fund boards.

Fund boards "screwed up. I can't say that in a much nicer way," Spitzer said. "Or I could, but I won't. They abdicated responsibility." Appropriately, the seminar at which Spitzer spoke, sponsored by risk consultant Kroll, was entitled "Funds Under Fire."

Regulators charge that boards have fallen down on the job by rubber-stamping fund companies' own agendas, which have at times conflicted with the needs of retail investors. Most famously, fund boards have come under scrutiny for allowing market-timing and late trading to go unchecked. They have also okayed reportedly generous compensation for fund managers while declining to make public the details of those pay packages.

Growing pressure from regulators, however, could push board members to become more active. The latest shot fired across the fund industry's bow came Monday, when securities regulators levied more than a half-billion dollars in fines on Bank of America ( BAC) and FleetBoston ( FBF), charging that the banks allowed practices favoring wealthy clients over retail investors.

"The days are over in which cronies of management sit there, voting on mutual fund issues without asking questions ," Spitzer said.

The record of mutual fund boards is so underwhelming that even legendary investor Warren Buffett has felt compelled to criticize them, he noted. In his latest letter to investors, Buffett described independent fund directors as "lapdogs," writing: "Sadly, 'boardroom atmosphere' almost invariably sedates their fiduciary genes."

Speaking before an audience of lawyers and a scattering of investment bankers, Spitzer said the trouble with mutual fund oversight was part of a broader, "gradual dissipation in standards that somehow overtook us" in the 1990s.

Two trends converged to create what he called "a perfect storm of corporate governance failure" -- financial services companies became bigger and more concentrated at the same time more small investors were joining the game. "Big institutions were saying, 'How do we make money on small portfolios?' and began to look at them as fee generators rather than clients to whom they owed fiduciary duties," Spitzer said.

He said investment bank management had confided to him at one point that banks had "all felt competitive pressure to descend to the lowest common denominator."

As a counterpoint to Spitzer, Michael Cherkasky, president and CEO of Kroll, drew comparisons between Wall Street malfeasance and the scandal that engulfed the Los Angeles Police Department in the 1990s. Kroll is monitoring the federal consent decree that mandates reforms at the LAPD to combat corruption and abuse.

At the police department, Cherkasky pointed out, "People joined to do the right thing." But a pernicious groupthink gradually undermined standards, he said. "When unionism goes away, when there's no oversight by regulators and consolidation of power, the good purpose of an organization doesn't work."

Meanwhile, the drive for corporate governance reform can claim progress: Auditors have become much more conservative in their approaches to accounting, while the Securities and Exchange Commission has become much more active in confronting structural problems in the financial industry, said Spitzer. In response to such pressure, public companies have lately issued a flood of earnings restatements , implicitly acknowledging that at times they pushed the boundaries of appropriate accounting.

Addressing corporate governance at public companies, Spitzer half-jokingly noted that a friend of his -- whom he described as a provocateur -- had suggested corporate boardrooms play host once a year to a short-seller, who could tell the CEO exactly what's wrong with company strategy. The suggestion prompted nervous laughter from some in the audience.

Spitzer also said Friday he believes abusive practices such as market-timing and late trading are now on the wane. Related, well-publicized SEC investigations have recently embarrassed investment outfits such as Bank of America, Pimco and Fremont Investment Advisors. "Everybody understood something was wrong, and I will be amazed if one year or two years from now we see a lot of either" market-timing or late trading, said Spitzer.

On a separate front, he predicted fund companies are likely to rein in fees charged for retail mutual funds, responding to criticism that institutional investors are favored with lower fees.

One area where more progress still needs to be made, Spitzer said, is in educating shareholders that they need to protest overly generous corporate compensation and options packages.

Asked for comment after Spitzer's talk, a man in the hotel lobby wearing a Goldman Sachs name badge fiddled with his cell phone and quietly grunted, refusing to acknowledge the presence of the reporter directly in front of him.