How bad are things in the mutual fund industry? Bad now, but they "may get much worse," says Fortune.

The Fortune article quotes Edward Siedle, "the man who may be the most plugged-in independent investigator of mutual funds."

His conclusion: "Illegal trading is pervasive, and it's longstanding. It's been going on for the last 20 years, and it costs investors billions." Note the language: Not "trading abuses" or "questionable practices," but "illegal trading"—flat violations of law. He's talking mostly about behavior that hasn't been in the news much so far, personal trading by top fund executives, things like front-running, which is putting in a personal buy or sell order just before placing a mammoth order on behalf of the fund, which is sure to move the price up or down.

No one would be shocked to discover such behavior at a few of the hundreds of fund firms. But Siedle says that far from being rare and scattered, such behavior is endemic—a fact of life at "most firms."

This is serious, and it gets worse. Siedle told me, "There's no question in my mind that the senior management of many of the leading fund companies have participated in wrongdoing, have been involved in criminal activity amounting to obstruction of justice." Again, note the language: "senior management," not middle managers, at "leading firms," not the two-bit operations that so often break the rules on Wall Street. And then the sledgehammer charge: "criminal activity," not just unethical behavior or violating internal codes of conduct, but real go-to-jail stuff.

Siedle speaks in quiet, matter-of-fact tones, so the full implications of his words take a few moments to sink in. When he said the above, I paused, then replied, "What you're saying suggests that the survival of some of these funds could be in jeopardy." His response: "We strongly believe that. We believe that the wrongdoing is so longstanding, involving such significant amounts of money, that it could very well cause some of these firms to crumble, or survive in much reduced fashion."

Interesting.

Oh, and for good measure, the article quotes a mutual fund CEO -- reportedly one of the clean ones -- who thinks stocks are overpriced and there's way too much optimism in the markets now.

Boom boom boom!