Wall Street is wondering who will be next.

In the past two weeks, the Street has been startled by the biggest insider-trading cases ever brought against prestigious investment bankers by the Securities and Exchange Commission. The agency's moves against First Boston Corp., and Dennis Levine, a managing director with Drexel Burnham Lambert Inc., have left many nervously asking who will be the next target of the SEC's crackdown.

As advisers to corporations on the most sensitive financial matters, investment bankers are expected to carefully guard confidential information about upcoming takeovers and other transactions. But in the midst of the frenzied deal-making that has propelled the investment-banking business to new heights, the SEC has raised a fundamental question about the integrity of the industry: Have executives at the most highly regarded Wall Street firms been misusing their inside knowledge for their own financial benefit?

Many experts who follow Wall Street closely believe that such abuses are far more widespread than investment bankers like to admit, and that there is ample reason for even the biggest-name firms to be worried.

"It certainly has put the fear of God into people," said Dan Good, head of the merger department at E. F. Hutton, when asked about the SEC charges. "The message they are sending is, if you are sloppy, you better clean it up. If you are in violation, we are coming to get you."

"If there is any message at all, it is that we are going to prosecute insider trading wherever we see it and by whomever commits it," said SEC enforcement chief Gary Lynch. "And we are going to be tenacious, and not simply fold our tent, if we discover foreign trading. We are going to do everything we can to determine who it is trading through foreign accounts."

Illegal insider trading involves the use of sensitive, nonpublic information by investors seeking to profit from sharp changes in the price of a stock. For example, a corporate officer involved in planning a takeover could profit illegally by buying stock in the target company before a takeover bid is announced.

No one knows more about upcoming takeover bids than Wall Street's investment bankers, who are the chief architects of these deals. In their role as financial advisers to corporations, they routinely arrange mergers and assist in raising funds. As a result, investment bankers are constantly privy to sensitive information. How often they, and others, use such information improperly has become a topic of increasing concern, primarily because scores of stock prices have moved up sharply prior to public announcement of takeover bids.

The SEC in the past has rarely filed insider-trading charges against investment bankers. But with the two major cases this month, the commission has grabbed both headlines and Wall Street's attention.

On May 5, the agency announced that it had charged First Boston Corp., a leading investment-banking firm, with improperly trading the stock of Cigna Corp. based on confidential financial information. In a settlement, First Boston agreed to pay a penalty of $264,276 and to repay $132,138 in profits, without admitting or denying the SEC's charges. The firm also agreed to conduct a review of certain internal procedures that are designed to prevent insider trading.

First Boston officials said that a "very serious" violation of its internal procedures had occurred on Jan. 30 in regard to trading in Cigna stock. On that day, confidential information that First Boston investment bankers had learned while advising Cigna was passed improperly to a senior First Boston stock trader, who immediately used the information to make stock trading profits for the firm. The disclosure of the incident raises serious questions about the extent to which investment banking firms are able to prevent conflicts of interest that arise out of the firms' dual roles as investors in stocks and advisers to corporations.

In this case, the so-called "Chinese Wall" that had been erected inside First Boston failed to prevent the improper flow of information from investment bankers to stock traders. The system inside First Boston also failed in another respect. To avoid a conflict such as the one that occurred, Cigna had been placed on a "restricted list" of stocks that First Boston was not allowed to trade.

According to First Boston, the senior stock trader failed to check the restricted list before trading Cigna shares. According to some Wall Street experts who believe inside trading occurs frequently, the most unusual aspect of this situation was that the SEC uncovered it.

The Wall Street community barely had time to digest the First Boston incident before the SEC filed one of the most dramatic insider-trading cases ever. Last Monday, the SEC accused Dennis Levine, 33, a managing director in the merger department of Drexel Burnham, of secretly purchasing stocks for five years on the basis of inside information. The SEC alleged that Levine, who was earning about $1 million a year in salary at Drexel, made more than $12.6 million in illicit profits by trading 54 different stocks on which he had confidential information. Levine has denied the charges.

Levine allegedly bought stock in some of the best known takeover targets of recent years. For example, he began purchases that totaled 100,000 shares of Union Carbide Corp. last December, about six days before the company became the target of a hostile takeover bid from GAF Corp., the SEC said. Levine's employer, Drexel Burnham, was GAF's adviser.

Levine also allegedly made $2.7 million by purchasing 150,000 shares of Nabisco Brands Inc. about three weeks before the company announced that it was considering a merger with R. J. Reynolds Industries Inc. However, Levine's employer, Drexel Burnham, was not involved in that deal, raising questions about who may have leaked confidential information about the upcoming deal to Levine.

If, as the SEC alleges, Levine traded 54 different stocks on the basis of confidential information, it is possible that other Wall Street executives soon may be implicated in the scheme. Among the looming questions are:

In addition to trading stocks, how much did Levine trade sensitive information with other investment bankers, or with professional speculators known as arbitrageurs? Were they also investing in stocks on the basis of inside information? Who are they?

During the 5 1/2 years in question, Levine worked for Smith Barney Harris Upham & Co., Lehman Brothers Kuhn Loeb Inc. (which later was acquired by American Express) and Drexel Burnham. Unlike the SEC's First Boston case, which named the firm and no individuals, the commission's case against Levine and his stockbroker, Bernhard Meier, named individuals, but no Wall Street firms.

The SEC said that Levine typically placed his trades by making collect calls from phone booths to Bank Leu International, a subsidiary based in Nassau, the Bahamas, of Bank Leu Ltd., which has headquarters in Zurich. Levine continued trading in this manner even after being questioned in 1984 by the SEC about his securities transactions, the commission said.

Levine, described by associates on Wall Street as an aggressive, well-respected deal-maker, also engaged in an elaborate cover-up scheme to try to block the SEC's investigation into his trades, according to the commission. As a result, he also faces criminal charges for obstruction of justice. Levine spent Monday night in jail in New York and was released Tuesday on $5 million bail, after posting about $1 million in collateral.

The extraordinary nature of the SEC charges against some of Wall Street's most prestigious investment bankers was reflected in separate statements issued by First Boston and Drexel Burnham after the insider-trading cases were announced.

"First Boston has been in business for over 50 years, and we have never before been the subject of an SEC disciplinary proceeding," said Peter T. Buchanan, president of the firm.

"This is the first such allegation made against a Drexel employe in our 51-year history," Drexel Burnham said.

Sam Hayes, a Harvard Business School professor who is an expert on investment banking, said he was not surprised by the insider-trading cases. He said they are a natural outgrowth of the dramatic growth of deal-making in the 1980s.

"To me, what has happened is sad, but not really surprising," Hayes said. "These investment banks have grown enormously larger over the last decade or decade and a half. With that growth in size, sheer numbers of people and variety of businesses has come an increasing potential for conflicts of interest to be played out. I see it as the inevitable consequence of explosive growth and an inability to grow internal controls and management of people as fast as the business itself grew.

"It was in no way the policy of any of the investment banks involved to condone this behavior," Hayes said. "The investment banks feel very burned by the revelations of the last week, and they are moving aggressively to restore confidence in their ability to police their own houses."

The major investment banking firms take many steps to guard against insider trading and information leaks, especially as they relate to takeovers. They use code names for deals, refrain from discussing details in taxis and elevators, routinely shred documents, and even may meet with corporate boards of directors in secret locations where they are not likely to be detected. They have systems designed to prevent confidential information from being passed improperly between departments within each firm, and they monitor their employes' stock trading by requiring them to disclose all transactions.

In spite of these controls, David Kay, codirector of the merger department at Drexel Burnham, said no system can stop a senior investment banker such as Levine from misusing confidential information that he learns in the course of doing his job.

"We view this as an isolated case of an individual in an extremely sensitive position misusing information," Kay said. "You can't legislate against that, and you can't control against that. We are constantly reviewing our controls, and I think that is true for every firm on the Street. The Levine matter is not an issue that is controls-driven. It is a situation that involved an individual in a high office misusing his position, if the allegations are correct."

"There is no way to supervise a person all the time," another investment banker added. "In the final analysis, the individual determines whether he will succumb. Systems be damned."

How widespread is insider trading? The SEC brought 24 insider-trading cases in 1983, 13 in 1984 and 20 in the fiscal year ended Sept. 30, 1985. During that time, the volume of stock trading and the number of mergers have skyrocketed. The last major case involving investment bankers was in 1981, when former employes of Morgan Stanley & Co. Inc. and Lehman Brothers were charged with improperly using confidential information to profit on stock trades in the 1970s.

Even though the SEC has made insider trading a priority, limited resources mean that the commission can bring only a small percentage of possible cases. The SEC therefore must pursue high-profile cases that have a deterrent effect because of the substantial publicity they generate. The two cases this month involving investment bankers fit that category, as does the case that sent former deputy Defense secretary and LTV Corp. director Paul Thayer to prison.

There are many on Wall Street who believe that the biggest insider-trading abuses are commited by arbitrageurs, the professional speculators who bet on the outcome of takeovers. The SEC's Lynch has said it is difficult to bring cases against arbitrageurs because they trade so frequently and because it is not easy to determine the source of their information. Nevertheless, some are convinced the "arbs" will be the SEC's next major target.

"The whole arb community is next," said one senior Wall Street official familiar with the Levine insider-trading case. "Dennis Levine worked off the arb community and with the arb community. The investigative trail will lead to the arbs."