Bank of America has settled with New York Attorney General Andrew Cuomo. So have Goldman Sachs, JPMorgan Chase, Merrill Lynch, Citigroup, Wachovia, Fidelity Investments, and 13 other of the nation’s largest brokers and underwriters of auction-rate securities. After Cuomo accused them of misleading investors about the riskiness of these securities, the firms agreed to buy back a total $61 billion worth of the paper.

But not Charles Schwab & Co.

In fact, founder Charles R. Schwab seems to be fighting a personal crusade against Cuomo, who has also made headlines in September for going after Merrill directors who oversaw the payout of big bonuses.

Under New York’s unusually strong antifraud law, the Martin Act, Cuomo has accused Schwab of “falsely representing auction-rate securities as liquid, short-term investments without disclosing the risks,” as his office explains in a press release. (The cases against the other firms are similar.) Auction-rate securities are actually long-term corporate and municipal bonds, but their interest rates are reset at weekly or monthly. That means that their returns—and liquidity—can vary widely.

For more than two decades, “the markets for these things have been pretty liquid, and investors have been able to get out,” according to Michael Fishman, a finance professor at Northwestern University’s Kellogg School of Management. However, all that changed with the credit crunch. Underwriters stopped buying back the securities in February 2008, leaving investors stuck with worthless paper and ultimately prompting the New York attorney general’s actions against all the firms.

Cuomo claims that Schwab “knew, or was reckless or negligent in not knowing, about rising problems” in the market starting the prior August and should have warned its customers. Instead, the lawsuit charges, brokers were not properly trained and “repeatedly misled investors.” The lawsuit asks Schwab to buy back any securities its customers still hold and pay an unspecified amount in penalties.

Schwab denies the charges. It argues that because it never underwrote the securities, it had no way of foreseeing that the market would freeze or knowing that the actual underwriters were artificially and “routinely propping up the market.” The firm also accuses the attorney general of basing his case on a few “isolated instances” of “minor failings” by brokers who didn’t fully disclose the risks.

Fishman of the Kellogg School says Schwab may have a point in distinguishing itself from firms like BofA, Citi, and Goldman, which underwrote the securities. “If there’s a difference—and the lawyers will decide—the underwriter who creates the security in the first place is in a more natural position to understand the security,” he says.