JPMorgan Chase has become the first major bank to be accused of institution-wide fraud stemming from the sale of mortgage-backed securities that helped fuel the 2008 meltdown on Wall Street.

The fraud accusation is contained in a lawsuit filed in the New York State Supreme Court by the state’s attorney general, Eric Schneiderman, who is also co-chairman of a task force created by the U.S. Justice Department, known as the Residential Mortgage-Backed Securities Working Group.

The suit was filed against Bear Stearns and one of its subsidiaries, both of which are now owned by JPMorgan. The government alleges widespread misconduct in the packaging and sale of mortgage securities during the housing boom, including lying to investors about the quality of the loans sold and pressuring underwriters to produce as many mortgage loans as possible regardless of their quality.

The allegations echo those found in other lawsuits currently being pursued against Bear Stearns and JPMorgan by private parties, including other banks seeking to recover losses in mortgage-securities deals brokered by the defendants.

One example is Dexia, a Belgian-French bank, which is suing JPMorgan to get back $1.6 billion it lost in deals with Bear Stearns and Washington Mutual, another institution taken over by JPMorgan during the financial crisis.

Altogether, the government claims investors lost $22.5 billion as a result of low-quality mortgages sold by entities now controlled by JPMorgan. The suit does not ask for a specific amount, but rather calls on JPMorgan to turn over all the profits it made as a result of fraud and to pay restitution to investors. Homeowners who were sucked into the deals with get nothing.

-Noel Brinkerhoff, David Wallechinsky

To Learn More:

JPMorgan Unit Is Sued Over Mortgage Securities Pools (by Gretchen Morgenson, New York Times)

Suit Against JPMorgan Alleges Widespread Mortgage Fraud At Bear Stearns (by Brady Dennis and Sari Horwitz, Washington Post)

JP Morgan’s Sub-prime Horror (by Robert Peston, BBC News)

New York State v. J.P. Morgan Securities (New York Supreme Court) (pdf)

Obama Administration Threatens to Pull Plug on JPMorgan Trading in Energy Market (by Ken Broder, AllGov)

Welfare for the Rich: U.S. Gives JPMorgan $14 Billion a Year in Subsidies (by Noel Brinkerhoff and David Wallechinsky, AllGov)

The Obama Mortgage Settlement is Just Another Bank Bailout in Disguise (by David Wallechinsky, AllGov)

New York Sues 3 Major Banks over Mortgage Fraud (by Matt Bewig, AllGov)