Challenging the long-sacrosanct secrecy of the Federal Reserve Board, to say nothing of the integrity of the Fed’s chairman, would be considered lèse-majesté of the highest order in Washington. Nevertheless, this summer one state’s attorney general — Andrew Cuomo of New York — had the temerity to slip internal Fed memos concerning Bank of America Corp.’s acquisition of Merrill Lynch & Co., along with depositions about the takeover from then–BofA chairman Kenneth Lewis and former Treasury secretary Henry Paulson Jr., to the House Committee on Oversight and Reform.

That was all the ammunition the committee’s chairman, Brooklyn Democrat Edolphus Towns, a longtime critic of Wall Street, needed to galvanize a hearing titled: "Bank of America and Merrill Lynch: How Did a Private Deal Turn into a Federal Bailout?" To his intense discomfort, Fed chairman Ben Bernanke testified before the committee on June 25 in room 2514 of the Rayburn House office building. The issue was highly charged: Did Bernanke conceal BofA’s $14 billion in losses from taxpayers, who effectively financed the BofA–Merrill merger through federal bailout funds?

No sooner did the Fed chairman conclude his brief and defensive opening remarks — he used the phrase "I did not" three times — than Towns drew a bead on him.

"Chairman Bernanke," he said,"did you instruct Hank Paulson to tell Ken Lewis that he and his board would be fired if they backed out of the Merrill deal?"

"I did not instruct Mr. Paulson or anyone else to convey such a threat to Mr. Lewis," responded Bernanke, his voice quavering slightly.

"Well, I understand that Mr. Paulson told Mr. Cuomo that you did," Towns shot back. "I just wanted to share that with you."

Over the next hour and a half, as the mostly hostile questioning dragged on, Bernanke’s shoulders slumped and he crossed his arms defensively. Ultimately, the head of the most powerful central bank in the world meekly conceded, "I don’t recall exactly what was said."

Andrew Cuomo, the ambitious, 51-year-old son of former New York governor Mario Cuomo, seems to have few limits on who he is willing to take on in his quest to occupy the same Albany mansion his father once did. "Cuomo defrocked the Fed — he knows what he has to do to get elected governor of the state of New York," says Mark Calabria, director of financial regulation studies at the Cato Institute.

Arguably, the New York State attorney general’s office has done more to reshape the U.S. financial industry in the current crisis than any other government entity, including the White House, Congress and the Securities and Exchange Commission. Ever since he was elected, in November 2006, Cuomo has made it clear that his raison d’être as attorney general is to identify conflicts of interest on Wall Street and pursue industrywide settlements to achieve broad and lasting reform. Columbia Law School professor John Coffee, an expert on white-collar crime, confirms that Cuomo "has been largely focused on the same recurrent topic, conflicts of interest — one that the Securities and Exchange Commission has been sluggish in responding to."

Cuomo seems to be everywhere. He has had notable success in stopping money managers from making "pay to play" payments to politically connected middlemen for mandates to manage public pension fund assets. He has forced investment banks and brokerages to buy back auction rate securities from investors that bought them thinking they were rock-solid cash equivalents only to find that the market for ARSs had frozen. And he has gotten bond rating agencies to alter their fundamental fee-charging scheme to eliminate a prima facie conflict of interest. Cuomo has also called attention to the awkward fact that some firms used Troubled Asset Relief Program bailout funds to pay millions of dollars in bonuses to their executives.

The common element of all these investigations is that they stoked public outrage. "This is not something that Cuomo stirred up," points out Coffee. "He just touched the hornet’s nest. He is playing hardball politics." Indeed, Cuomo appears to be picking up where his predecessor as attorney general, Eliot Spitzer, left off. Spitzer’s crusade against corporate excesses propelled him into the New York governor’s office.

Financial reform, however, takes years to achieve tangible results, cautions Thomas Nohel, a finance professor at Loyola University in Chicago. "It’s way too early to tell whether there will be any long-term impact, let alone what it will be," he says. "Obviously, there is tremendous upheaval on Wall Street. This creates a powerful tailwind for Mr. Cuomo."

That tailwind has been hurrying the attorney general’s reforms along. Cuomo’s crackdown on pay-to-play, for instance, prompted an internal investigation by the California Public Employees’ Retirement System into payments that certain of its money managers allegedly made in exchange for mandates to manage CalPERS assets.

But with Cuomo it is hard to parse out zeal for reform from raw political ambition; each feeds the other. And both have been bred into his bones. Immediately after graduating from Albany Law School in 1982, Cuomo got his first real job: managing his father’s gubernatorial campaign. Then he served, briefly, as an assistant district attorney in Manhattan (in the same office as Spitzer), before being appointed to various jobs in New York City government.

His political star ascended in 1993 when the Clinton administration named him assistant secretary for Housing and Urban Development, and it rose even higher when he replaced HUD secretary Henry Cisneros in 1997. (Cisneros quit after being investigated by the Federal Bureau of Investigation for supposedly lying about payments made to his former mistress.) Having the top HUD job increased Cuomo’s visibility, not least in New York State, where there are a large number of HUD units.

Then, with the Clinton administration out of office barely a year, Cuomo, still in his mid-40s, audaciously took a shot at running for governor of New York. He defied Democratic Party leaders, who were backing New York comptroller H. Carl McCall, the state’s first serious African-American gubernatorial candidate. Having antagonized the political establishment and running well behind in the polls, Cuomo withdrew a week before the primary.

"The gubernatorial race was a terrible error, but he humbled himself and came out a better person for it," asserts George Arzt, a New York Democratic strategist who has advised both Cuomo and Spitzer. A personal setback followed the political one. Cuomo went through a messy divorce from Kerry Kennedy, of the Kennedy clan, with whom he shares three daughters.

Chastened by his aborted gubernatorial bid, Cuomo next time picked a more attainable political target: the attorney general’s office. And today a more seasoned and certainly better-known Cuomo appears to hold a guaranteed first-class ticket to Albany by way of Wall Street.

His mastery of the political craft shows in the financial cases he has chosen — they seem particularly primed to arouse voter indignation. Yet Cuomo’s supporters insist his approach is not driven wholly by politics. "His political strategy is really to do the best job possible," contends Arzt. "He can’t run for governor unless he does a good job as attorney general."

Cuomo’s methods, however, can be as provocative as they are productive. Immediately on occupying the attorney general’s office — a stone’s throw, conveniently enough, from Wall Steeet — in January 2007, Cuomo asked former attorney general Robert Abrams to handpick a fresh team for him. Cuomo wanted dogged, knowledgeable prosecutors, not political cronies.

He wound up following Abrams’s recommendations to the person. "Andrew was rolling the dice a bit," acknowledges Abrams. "Not a single person here had ever had a conversation with Andrew Cuomo." Nevertheless, in law professor Coffee’s estimation, the new attorney general ended up with an even better staff than the demanding Spitzer.

The attorney general has sought, ambitiously and controversially, to enforce sweeping settlements to achieve broad reforms. Once his office builds a case against a particular firm, Cuomo — in a highly unusual step for an attorney general — will phone its counsel or outside attorney and declare that he intends to file civil fraud charges against the firm within two weeks. He will then add, helpfully, that the company might consider settling instead of going to court. Assuming the usually intimidated firm finds the latter to be the wiser course, Cuomo initiates the second phase of his battle plan: He calls the company’s competitors to forge an industrywide settlement.

"Cuomo personally calls the general counsel of a major corporation and just says, ‘I am going to announce settlements in this case involving your competitors, and I’m going to do that in the next couple of days, and you should do it as well,’" says David Pitofsky, a former federal prosecutor who is now a partner at New York law firm Goodwin Procter. "My understanding is that it has been incredibly effective."

The reasoning behind the attorney general’s approach is that it’s easier for a company to settle when it’s part of a crowd. "He puts companies in a position where they can say with a straight face that they are going to return money to investors," says Pitofsky. "That gives them a softer landing than just being told by a beat cop that they got caught."

One company that accepted such a soft landing was TD Ameritrade Holding Corp., one of several firms that sold auction rate securities to clients. Unlike most of the other firms settling, however, Ameritrade did not originate the ARSs. Even so, the company agreed to buy back $456 million of the securities. Ameritrade contends that it was considering buying back ARSs to recompense clients even before Cuomo strongly suggested it.

Cuomo seems to have a knack for building consensus, starting in his own office. "Andrew is someone who listens and searches for the right answer around the room and asks for consensus," notes strategist Arzt. "You are not afraid to talk to him." The attorney general keeps his office door open at all times so that he can shout back and forth with his lieutenants.

That openness helps, too, in sharing scuttlebutt and fashioning cases. One insider says of Cuomo’s modus operandi: "He has a group of people inside who hear about things, and he just gives the go-ahead with the investigation. But it goes through a lot of layers before it gets to him."  The 650 or so assistant attorneys general constantly gather rumors about Wall Street conflicts of interest and discuss them among themselves. However, only senior prosecutors and Cuomo himself can authorize full-blown investigations and decide which cases are fit for trial.

Cuomo’s tactics draw criticism for being as harsh in their own way as those of Rudolph Giuliani when he was U.S. attorney for the New York region in the 1980s. Attorneys representing firms that have found themselves in Cuomo’s crosshairs have griped that their clients were at a loss as to why. A corporate lawyer who once worked in the New York attorney general’s office reports that one baffled client told him, "I don’t even know what law I’ve broken!" A source in Cuomo’s office dismissed such complaints, saying the attorney general’s view is that "the law is the law."

Some firms have not rolled over and settled. In July, Cuomo warned Charles Schwab Corp. that the brokerage firm faced civil fraud charges for selling ARSs, although it did not originate any of the securities. Chairman Charles Schwab took to The Wall Street Journal ’s op-ed page to protest, and the firm is fighting the charges.

The antagonism toward Cuomo at firms that he has cornered can be fierce. Robert Benmosche, who became CEO of American International Group in August, accused Cuomo of stirring up "lynch mobs" to visit executives’ homes and declared that the attorney general "doesn’t deserve to be in government." Cuomo had successfully pressured Benmosche’s predecessor, Edward Liddy, to resign after Liddy allegedly authorized lavish bonuses at the insurance firm, whose majority owner, by default, is now the U.S. government. If he had been in Liddy’s shoes, Benmosche told AIG employees, "I would have told them what to do with this job!" Benmosche’s comments found their way onto the Bloomberg news service. He later said he regretted having made them.

"Prosecutors who use the full extent of their office are sometimes a little bit rough," concedes Coffee. Yet he sees Cuomo as having a lighter touch than either Spitzer or Giuliani, because he has tried harder to reach settlements rather than pursue prosecutions.

This quest for consensus, though heavy-handed at times, does differentiate Cuomo from Spitzer. The latter’s customary strategy was to make examples of CEOs by threatening them with civil or criminal charges unless they resigned. By contrast, observes Abrams, "many of the things that Andrew has achieved he has achieved without the necessity of bringing lawsuits." Abrams adds that "Andrew has as a goal reform."

Cuomo and Spitzer differ in another conspicuous way. Cuomo is much more guarded in his dealings with the press. (He declined to be interviewed for this story.) When he does talk about himself, it tends to be in a semicontrolled environment, such as a press conference in upstate New York where he can be sure of being surrounded by sympathetic voters who distrust Wall Street. Cuomo’s reticence, of course, is prudent at a time when he’s well ahead in the polls. "Andrew knows that at this point publicity can only hurt him," Arzt points out.

One thing Spitzer and Cuomo seem to have in common is a reliance on the attorney general’s office as a springboard to the governor’s mansion. Spitzer served as attorney general for eight years before becoming governor. (He resigned in March 2008 after admitting to patronizing prostitutes.)

Cuomo’s own popularity has soared since he became attorney general. On September 22 the Siena Research Institute released a poll of 792 New York voters showing that Cuomo’s favorable rating had risen by 18 percentage points, to 66 percent, since he took office, and his unfavorable rating had fallen by 8 points, to 21 percent (13 percent were undecided). "If the Democratic primary for governor were held today, he would win that in a walk," says Steven Greenberg, a Siena pollster. "Voters like the work the attorney general is doing."

Cuomo was not a success at first blush. His initial case — a court battle challenging former New York Stock Exchange CEO Richard Grasso’s $187.5 million retirement package — flopped, and Grasso got to keep the entire stash. In fairness to Cuomo, he inherited the case from Spitzer in midstream, and it was based on an old law intended to protect nonprofits from fraud; the NYSE is anything but a nonprofit.

Soon, though, other cases would help Cuomo establish his bona fides and alter some of Wall Street’s bad habits. Despite his experience with housing issues, Cuomo was as blindsided by the subprime mortgage debacle as anyone else. Still, he blamed the debt rating agencies for not sounding the alarm and accused them of conflict of interest: The agencies are paid by the very bond issuers whose securities they rate.

In September 2007, after the SEC said it would take a closer look at the rating agencies, Cuomo’s staff started working directly with Standard & Poor’s, Moody’s Investors Service and Fitch Ratings to hammer out a settlement that would root out the conflict of interest, specifically in reviewing mortgage-backed securities. After some procrastinating — which drew a rebuke from Cuomo — the agencies came up with a sweeping six-point reform program. They agreed to adopt a "fee for service" payment structure. Bond issuers would pay them for reviewing their mortgage bonds for creditworthiness, not just for formally rating them. Under the old regime the agencies would review bonds but get paid only if a bond issuer picked them to rate a bond. The idea was to stop banks from shopping around for the most favorable rating. Playing catch-up, the SEC hatched a proposal that the agencies be held liable for the performance of bonds they rate.

Contrary to his solo-crime-fighter image, Cuomo does not always go it alone. The attorney general cooperated with the SEC in pursuing investment banks after investors complained that the banks had pitched auction rate securities as being as safe as cash — even after the market for ARSs had frozen up. In July 2008 an SEC task force came to New York, sat down with Cuomo’s staff and, according to sources familiar with the negotiations, suggested a framework to get money back to injured investors. Cuomo joined the discussions, approved of the basic plan and suggested ways to make it better. A month later, Citigroup, Merrill Lynch and UBS agreed to buy back nearly $40 billion of ARSs from their retail clients. Morgan Stanley, Wachovia and other banks subsequently joined the settlement.

The case, though, that has the greatest potential to cement Cuomo’s reputation as a reformer is his crackdown on pay-to-play. In December 2006, Albany County District Attorney David Soares tipped off Cuomo to a puzzling loose end after then–New York State comptroller Alan Hevesi pleaded guilty to corruption and resigned. The comptroller’s political adviser, Henry (Hank) Morris, had allegedly collected some $15 million in finder’s fees from roughly 15 money management firms eager to win mandates to manage assets for the New York State Common Retirement Fund. Hevesi, as the sole trustee of the then-$110 billion pension fund, did not require money managers to compete for mandates based on investment performance, and some of the funds hired by New York Common had less than stellar results.

Cuomo indicted Morris, as well as David Loglisci, the fund’s former chief investment officer. The indictment contained no fewer than 123 counts of fraud, grand larceny, bribery, money laundering and other charges. Next, Cuomo issued more than 100 subpoenas to investment managers and their so-called placement agents (like Morris). The SEC quickly fell into lockstep, filing federal fraud charges against Morris and Loglisci.

Cuomo did not, however, accuse the money managers that supposedly paid the finder’s fees of bribery. Coffee notes that Cuomo was smart enough not to risk taking the firms’ highly paid lawyers to court when it would have been all too easy for the firms’ managers to claim that they didn’t know the "fees" they had paid were illegal. Instead, the attorney general negotiated settlements with seven firms that managed private equity investments for New York Common. Riverstone Group agreed to pay $30 million; Carlyle Group, $20 million; PCG Corporate Partners Advisers II, $2.1 million; Access Capital Partners, $1.6 million; Falconhead Capital, $1.3 million; HM Capital Partners, $1.56 million; and Levine Leichtman Capital Partners, $200,000.

Cuomo’s agreement with the seven is likely to have a lasting impact, though not because of the size of the settlements. The firms agreed to embrace a voluntary code of conduct drawn up by Cuomo’s staff and intended to eradicate pay-to-play in public pension funds across the nation. The code’s main tenet: Do not pay money to a placement agent to win a mandate from a pension fund. California, Illinois, New Jersey, New Mexico and North Carolina have indicated that they will adopt the code for their public funds, and Cuomo has said he is talking to 35 state attorneys general in all about using it.

Still, skeptics have their doubts. Pay-to-play is so thoroughly ingrained in the money management industry that it would take years, not months, to make a dent in the practice, contends Michael Beasley, managing director of San Francisco–based consulting firm Strategic Investment Solutions.

For voters in New York (and beyond), perhaps the issue that will best define Cuomo’s legacy as attorney general is his assault on excessive compensation at financial firms at the expense of U.S. taxpayers. He pried open that gilded Pandora’s box this February when he wrote House Financial Services Committee chairman Barney Frank to reveal that Merrill Lynch paid $3.6 billion in bonuses to top employees right before BofA acquired the onetime Wall Street titan. Cuomo noted that both BofA and Merrill had received TARP bailout funds. The attorney general deposed BofA CEO Kenneth Lewis and Merrill CEO John Thain, both of whom subsequently lost their jobs.

On July 30, Cuomo’s office issued a report on financial firm pay, explosively titled: "No Rhyme or Reason: The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture." The study’s conclusion: "When the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well."

But if Wall Street compensation packages do shrink partly as a result of Cuomo’s efforts, they are still likely to remain obscenely large — at least by upstate New Yorkers’ standards. "In the end, if you want people to do these things, you will have to pay the going rate," says Andrew Maguire, a senior partner of Boston Consulting Group in London who advises investment firms.

"A lot of things Cuomo has focused on will effect lasting change, such as pay-to-play," concludes Donald Putnam, founder of Grail Partners, a San Francisco investment bank that advises money managers. "But a lot of the cases he has focused on are designed to serve his own political career. They are not designed to effect lasting change. They are designed to create immediate headlines."

The enduring impact of Cuomo’s reforms is a matter of contention. But there is no disputing that he has accomplished one goal: enhancing his political stature. According to the Siena poll, Cuomo, as the Democratic gubernatorial candidate, would beat Republican prospects Rudy Giuliani and Rick Lazio, an ex-congressman and now an executive vice president at JPMorgan Chase & Co., by 13 and 46 percentage points, respectively.

Cuomo insists that he has not begun campaigning for governor. (He is not, officially, a candidate.) He has said that "politics doesn’t help me do the governmental job. I can do my job better when I can work on both sides of the [political] aisle."

Yet as the election draws closer, Cuomo may be forced more and more to choose between his roles as a staunch reformer and a dutiful Democratic candidate. "There is always the underlying question of whether Mr. Cuomo just has his eyes set on the governor’s office — as Mr. Spitzer apparently did — which will likely make him unwilling to step on too many toes in the Democratic Party," notes Loyola professor Nohel.

Still, Wall Street can’t rest easy.