At least the regulators are now tailing the fund frauds that flourished right under their noses. This week, the Securities and Exchange Commission is adopting new rules to push funds toward obeying the current laws (they don’t now), as well as making it harder for them to let big investors skim off profits. In a few weeks, the NASD (formerly the National Association of Securities Dealers) will bring enforcement actions against brokerage firms that grossly overcharged investors. New York Attorney General Eliot Spitzer, who turned over the rock that exposed these worms, says he’s likely to bring a lawsuit a week, through January, against devious mutual funds–and promises “a lot of criminal cases across the nation.”

Here’s how funds cheat:

They may pay brokerage firms to get on a ‘preferred list’’: The brokers sell from that list, whether the funds are good or not.

They may pay ‘soft dollars’: That means paying the brokerage firms more than necessary to buy and sell securities. In return, the funds get stock research, which could be useful. They might also get “free” computers or services that, by law, should be disclosed as part of the expense ratio. You pay soft-dollar costs without ever knowing it.

They don’t disclose all your costs: The prospectus shows you the upfront sales charge, if any, and the “expense ratio,” which covers operating costs. But it doesn’t reveal brokerage costs or soft dollars. Vanguard founder John Bogle estimates that expenses on taxable funds run 2 to 3 percent. Add 0.4 percent more for brokerage costs. All together, that’s about 25 percent of the stock market’s long-term, 10.4 percent return.

Their Boards of Directors hide: You don’t even know how to contact the board with a complaint. The whistleblowers who outed the deceptive funds didn’t go to the boards, they went to state regulators instead.

Reforms needed: The amount your fund pays in brokerage commissions and soft dollars should be disclosed. Boards of directors, who are supposed to represent you, should put their names and a contact point into the annual report. Morningstar managing director Don Phillips thinks they should write a yearly shareholder letter saying what they did.

Brokers don’t give you required discounts on sales commissions: If you buy A shares with a front-end load, and invest a large amount–say, more than $25,000 or $50,000 from an IRA rollover–you’re entitled to a lower sales charge. Where the discount kicks in is called a “breakpoint”–but tons of investors aren’t getting the discounts they deserve. The NASD has ordered the firms to contact clients and repay overcharges.

Some brokers sell large investors B shares, which have no breakpoints, hence no discount–and you also pay higher annual fees. If A shares would have been cheaper, tell your broker to redo the buy. Calculating breakpoints is more complicated than I’ve shown here. For details, go to nasd.com and look for its informational Investor Alerts.

They charge you double loads: Few investors (and brokers) know that if you’re switched from one load fund to another, you usually don’t have to pay the load a second time. The rules apply even if you buy from a different broker. Planner Rick Sabo of Money Concepts in Gibsonia, Pa., got $1,520 back for a client just by asking the new fund for a fix.

Reforms needed: Brokers should disclose how much the funds pay them to make a sale. Costs should be shown in dollars and cents (something Vanguard has started with its funds). “The best thing that could come out of this mess is full fee disclosure on one piece of paper,” says Mary Schapiro, vice chair of the NASD.

Mutual funds are still your best investment. To avoid crooked tactics, buy no-loads with low yearly expenses (under 0.9 percent for U.S. equity funds; under 0.6 percent for bond funds). You want seasoned money managers who trade infrequently and with long-term performance in line with that of their peers.

Should you sell the mutual funds in trouble with the law? Pause, if you’ll pay big redemption charge or taxes. But if the fund’s fees are high, its performance mediocre and its managers cheaters, dump it for the skunk it is.