US government supports NY attorney general’s suit against one of the companies responsible for global financial crisis.

New York’s attorney general has filed the first lawsuit against one of the companies that kicked off the global financial crisis.

The US federal government on Tuesday also threw its support behind a suit against JPMorgan Chase accusing Bear Stearns, the investment bank JPMorgan bought in 2008, of engaging in massive fraud in deals involving billions in residential mortgage-backed securities.

At a news conference, acting Associate Attorney General Tony West credited a federal-state working group of law enforcement agencies created by President Barack Obama in 2009 with assembling evidence in the suit.

This is the first action to come out of the working group created to go after wrongdoing that led to the financial crisis.

The Obama administration has been under heavy political pressure to hold major Wall Street players accountable for the US’s biggest financial collapse since the Great Depression.

New York Attorney General Eric Schneiderman filed the civil fraud lawsuit against JPMorgan Chase & Co on Monday over mortgage-backed securities packaged and sold by the former Bear Stearns.

JP Morgan, which bought Bear Stearns for $10 a share in March 2008, said in a statement it would contest the allegations.

‘Serious concerns’

The suit accuses Bear Stearns of failing to ensure the quality of loans underlying residential mortgage-backed securities it packaged and sold in 2006 and 2007.

Investors lost more than $22.5bn on more than 100 of those securities, or one quarter of their original value, the lawsuit said.

The lawsuit alleged there were “serious long-standing concerns” about the quality of reviews done by Bear Stearns and

that its due diligence process was compromised “in order to increase their volume of securities.”

It also alleged a “systematic abandonment of underwriting guidelines”.

In its statement, JPMorgan noted the allegations concern actions by Bear Stearns before the investment bank was acquired

by JPMorgan.

“The NYAG civil action relates to Bear Stearns, which we acquired over the course of a weekend at the behest of the US

Government. This complaint is entirely about historic conduct by that entity,” the statement said.

Schneiderman’s lawsuit, filed in New York State Supreme Court in Manhattan, was based on the Martin Act, New York

state’s powerful securities fraud statute, which does not require proof of intent to deceive.

Tumultuous year

This is not the first time Bear Stearns has emerged as central figure in the financial crisis.

In June 2008, two former Bear Stearns hedge fund managers were charged by federal prosecutors with lying to investors about the financial health of their funds, which had invested heavily in mortgage securities backed by subprime loans.

The managers were acquitted in a case that still stands as one of the few criminal prosecutions against Wall Street bankers

to emerge from the financial crisis.

Monday’s lawsuit comes in a tumultuous year for JPMorgan and Chief Executive Jamie Dimon. Federal authorities are currently investigating a nearly $6bn trading loss in JPMorgan’s chief investment loss.

Last month, US power regulators asked the bank to demonstrate that it did not violate federal regulations by submitting misleading information and omitting facts in dealings with the regulator and California’s electricity grid operator.

The Residential Mortgage-Backed Securities Working Group was formed to probe the pooling and sale of risky mortgages in the run-up to the 2008 financial crisis.

The task force includes the Justice Department, the Securities and Exchange Commission, the Department of Housing and Urban Development and the Internal Revenue Service.