The federal government is throwing its support behind a lawsuit 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.

New York Attorney General Eric Schneiderman said Tuesday that the bank and several of its subsidiaries misrepresented their actions to investors when selling mortgage-backed securities. "Defendants had no legitimate basis for any of the numerous representations about the quality of loans in their securities because their systems for ensuring loan quality were a sham," he said.

Schneiderman on filed suit on Monday against JPMorgan Chase, formally Bear, Stearns & Co., alleging “multiple fraudulent and deceptive acts in promoting” its residential mortgage-backed securities to investors. The suit also names Bear Stearns and a subsidiary, which were hastily acquired by JPMorgan more than four years ago.

A spokesman for JPMorgan said the company will contest the allegations.

“We’re disappointed that the NYAG decided to pursue its civil action without ever offering us an opportunity to rebut the claims and without developing a full record – instead relying on recycled claims already made by private plaintiffs,” Joe Evangelisti said.

He stressed that the action stems from activities conducted by Bear Stearns before it was bought be JPMorgan at the behest of the government, and with a $29 billion government loan.

At a news conference, acting Associate Attorney General Tony West credited a coalition of law enforcement agencies created by President Barack Obama in 2009 with assembling evidence in the lawsuit brought by the New York attorney general's office.

Former FDIC Chairwoman Sheila Bair told WNYC's Brian Lehrer Show on Tuesday that she is happy about the suit but thinks more individuals should be held accountable for actions that may have contributed to fraud.

"I think there  hasn't been much personal accountability here," she said, "and the suits against the corporations are fine, but that's the corporate money pays for those and it would be nice to see individuals sued more and make them pay out of their pocket, or maybe even go to jail in cases of fraud. That’s really where I would like to see more emphasis on the enforcement effort."

Investors have already sought damages from JPMorgan in several suits, but the New York Attorney General’s powers under the Martin Act may allow him to bring new evidence to light.

The Associated Press and Annmarie Fertoli contributed reporting

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