The lawsuit is the first to be filed under the direction of the RMBS Working Group, set up by President Barack Obama to investigate and prosecute alleged misconduct that contributed to the financial crisis and comes just days before the first US presidential debate and one month shy of the presidential election.
New York's attorney general accused JPMorgan Chase, the then-Bear Stearns & Co and EMC Mortgage of systematically selling residential mortgage-backed securities as carefully evaluated and structured products, when in fact they were sold with little regard to quality or viability.
The attorney general said the fraudulent marketing of the RMBS in 2005-2007 caused losses of $22.5 billion (17.4 billion Euros), 26% of their original face value.
The suit claims: "In fact, Defendants systematically failed to fully evaluate the loans, largely ignored the defects that their limited review did uncover, and kept investors in the dark about both the inadequacy of their review procedures and the defects in the underlying loans."
BearStearns collapsed in 2007-2008, the first major casualty of the financial crash that was entrenched in the imploding housing sector.
JPMorgan Chase took the company over in March 2008 in a deal organized by the Federal Reserve to prevent the waning investment bank's losses from pulling down other banks.
The New York attorney general, called for the court to force disgorgement of earnings and benefits on the sales of the RMBS, pay restitution to investors, and order defendants to pay unspecified damages in addition.
JPMorgan Chase & Co. spokesman Joseph Evangelisti says the bank intends to contest the allegations.
