WASHINGTON, April 17 (Reuters) - The Federal Bureau of
Investigation's probe of the subprime mortgage industry could
uncover fraud involving Wall Street investment banks, private
equity firms or hedge funds, the head of the agency said on
Thursday.

Robert Mueller, FBI director, told an American Bar
Association conference he expected to see more corporate fraud
cases in the future "because of the ripple effect" of the
subprime mortgage crisis.

The bureau's investigation of potential fraud in the U.S.
home mortgage industry now encompasses 19 companies in "cases
that may have a substantial impact on the marketplace," Mueller
said.

"We are targeting accounting fraud, insider trading and
deceptive sales practices. These investigations may well lead
to other instances of fraud, from investment banks and private
equity firms to hedge funds."

The subprime probe demonstrates why independent members are
needed on corporate boards of directors, he said.

"These investigations further emphasize the need for
independent board members, auditors and outside counsel," he
said. "Shareholders rely on the board of directors to serve as
the corporate watchdog. But often, we see conflicts of interest
in the corporate suites."

Mueller also told the meeting of lawyers that their
corporate clients should come forward and admit any wrongdoing
before the FBI or Justice Department become involved.

"Executives who let the situation escalate to the point of
a sudden restatement -- and a resulting loss of shareholder
confidence -- often do greater harm to the companies they are
trying to protect than if they had exercised early
intervention," he said.

Mueller did not identify any of the companies targeted in
the FBI's subprime investigation.

To date, the FBI has publicly acknowledged the identity of
only one company involved in the probe, Doral Financial Corp
(DRL.N: Quote, Profile, Research). A former Doral treasurer was indicted for investment
fraud last month. He denied the allegations and the company has
declined to comment.

The largest U.S. mortgage lender, Countrywide Financial
Corp CFC.N, also is under FBI investigation, authorities have
said, although the FBI has declined to comment and Countrywide
said it was unaware of any investigation.

When the FBI disclosed its industry investigation, major
investment banks Goldman Sachs Group Inc (GS.N: Quote, Profile, Research), Morgan Stanley
(MS.N: Quote, Profile, Research) and Bear Stearns Cos Inc BSC.N each said the
government had asked them for information, but there was no
confirmation of any FBI role. Beazer Homes USA Inc (BZH.N: Quote, Profile, Research) said
last year it received a federal grand jury subpoena related to
its mortgage business.

The credit market crisis traces its roots to defaults in
the subprime mortgage market last year. Losses and write-downs
have choked the credit market and could eventually approach $1
trillion, the International Monetary Fund said earlier this
month.
(Reporting by Julie Vorman; Editing by Andre Grenon)