Morgan Stanley is under investigation by Massachusetts and New York for allegedly pushing its in-house mutual funds and not disclosing to investors that brokers made better commissions when they sold the house funds.

The practice of pushing house funds is not illegal, but full disclosure to investors about commissions is required.

Massachusetts Secretary of the Commonwealth William Galvin filed a complaint on Monday, and long with New York Attorney General Eliot Spitzer, plans to look into whether other investment firms improperly tied bonuses and commissions to sales of house funds. Federal regulators are looking into this practice as well.

"Usually, when you see one ant at a picnic, you see a lot more," Galvin told the Associated Press, adding that the investigation could result in Morgan Stanley being forced to tell customers about any conflicts of interest as well as any hidden costs resulting from beefed up commissions.

Galvin was tipped off by an anonymous complaint that Boston-based Morgan Stanley brokers were being pressured to push the in-house mutual funds to clients who were expecting unbiased advice. He did not single out any investors supposedly impacted by the practice, which in and of itself is legal.

In May, Morgan Stanley had strongly denied pressuring its work force to focus on house funds or that additional compensation is paid to brokers who sell Morgan Stanley funds. However, the firm’s in-house payment official admitted to regulators under oath that there is added financial incentive for pushing house funds and that investors are not aware of the practice.

Federal regulators are investigating the firm’s mutual fund sales policies and the SEC began a formal investigation in April, which was documented in Morgan Stanley’s quarterly financial report. Morgan Stanley said it is cooperating with investigations by the SEC and others. In addition, the National Association of Securities Dealers said in that it is considering disciplinary action on past IPO sales made by the firm.