New Business February 25, 2010, 5:00PM EST

A Choir Boy Battles Wall Street

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Cordray is suing BofA for allegedly misleading investors Shannon Stapleton/Reuters

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After the financial crisis, though, the First Amendment defense looks less solid. In September 2009, Judge Shira A. Scheindlin of the U.S. District Court in New York denied a motion from Moody's and S&P to dismiss a suit brought by Abu Dhabi Commercial Bank and King County, Wash., on First Amendment grounds. "The crux of the cases will be whether there was a known misrepresentation," says Spitzer, the former New York governor and, before that, attorney general, who is a Cordray admirer. "Being wrong is not a crime." Kevin M. LaCroix, an attorney and partner at OakBridge Insurance Services, says of the suit's chances: "I think it's an uphill but not insurmountable battle." Moody's and S&P say the suit is without merit. Fitch didn't return phone calls seeking comment.

Cordray, a corporate lawyer for two decades who has argued seven cases before the U.S. Supreme Court, is bringing in top-flight private litigators for the fight. Whereas Spitzer famously assigned the bulk of his office's legal work to in-house attorneys, Cordray is recruiting from big outside firms such as Entwistle & Cappucci, Lieff Cabraser Heimann & Bernstein, and Schottenstein Zox & Dunn. Critics say the practice wastes taxpayer money, since the outside attorneys will reap big contingency fees from any settlement. "Even if the cases are successful and Ohio recoups some money, a large portion is lost to paying well-connected plaintiffs' firms," says Weaver. In February members of the state's Controlling Board, a group charged with overseeing fiscal issues, demanded that Cordray's office justify the additional cost to the state. The board asked why the attorney general's office would pay attorneys from Hogan & Hartson $670 an hour in a case involving the University of Cincinnati's University Hospital when in-house lawyers command far less. Cordray says the cases are assigned on merit, and that the university is paying Hogan & Hartson's high-priced bill. Before pursuing the Bank of America suit, for example, he convened a group of lawyers in his Columbus office to debate whether to litigate and make a pitch for why their firms should win the state's business. "He peppered us all with very detailed questions," says Max W. Berger, whose firm, Bernstein Litowitz Berger & Grossman, has contracted with Cordray's office on the case. Bank of America declined to comment on the case.

While Cordray says he's eager to take on BofA and the ratings agencies, he doesn't want a protracted court fight. He isn't unique among attorneys general, who have historically fought corporate foes in public forums and settled before going to trial. Class-action attorneys say attorneys general revel in the publicity of big settlements—and hope to avoid alienating the public with costly court battles. "They believe in trial by press conference," says Boris Feldman, a partner with Wilson Sonsini Goodrich & Rosati, a securities-litigation specialist in Palo Alto, Calif. "It's very rare that they actually litigate a case." Perhaps that's because the few who have ventured into court haven't always fared well. In 2004, then Attorney General Spitzer sued Richard A. Grasso, the chairman of the New York Stock Exchange (NYX), for allegedly misleading investors about his pay package. While Spitzer won in New York State Supreme Court, the decision was largely overturned by the New York State Court of Appeals.

If Cordray beats the odds and wins a splashy settlement with the ratings agencies, it would certainly bolster his chances of winning the governor's race in 2014. That's if he decides to run, of course. For now, Cordray says he intends to focus on his job as Ohio's top prosecutor. "The key is to do a good job now." A good job for Ohioans might not win him many friends on Wall Street.

Silver-Greenberg is a reporter for BusinessWeek.com.