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New York Bank Probe Not Over Yet: Cuomo's Office 

Some big Wall Street banks may have been premature in believing New York State's investigation into auction-rate securities was over, people inside New York Attorney General Andrew Cuomo's office told CNBC.

In fact, the investigation is continuing and includes firms like JP Morgan Chase , GoldmanSachs and Lehman Brothers , these people say.

The probe, however, is largely focused on three firms: Merrill Lynch , Wachovia and to a lesser extent Morgan Stanley .

State and federal regulators have been investigating whether brokerages and banks falsely told clients that auction-rate securities—a $330 billion market of long-term debt instruments that pay yields reset through weekly or monthly auctions—were as safe and liquid as cash.

Watch the video at left for more details of the Cuomo investigation.

Both JP Morgan and Merrill announced plans to pay back investors who bought illiquid auction rate securities at par, but the firms announced this plan before Cuomo concluded his investigation into the firms' conduct. Cuomo also believes both the Morgan Stanley and Merrill Lynch settlements are inadequate.

Specifically, he says that neither addresses the issue of damages—or making people whole who already sold their auction rate securities at less than par because the firms wouldn't make good on their promise to hold auctions and the market declined.

Cuomo wants these investors to be made whole as well. In addition, Cuomo wants all deals to include some sort of restitution for institutional investors.

The current focus of most of the settlements has been the smaller so called "retail" investor, but Cuomo believes large investors were misled as well and deserve something in return.

The Wall Street firms counter that Cuomo is simply looking for his own "Spitzer Moment"—referring to the former attorney general who made his name holding lavish press conferences. They contend Cuomo is looking for publicity and the early settlements deprived him of a media event.

People at Morgan point out, for instance, that they have agreed to pay damages to investors who sold their auction-rate securities at a loss.