Updated with comment from former SEC Senior Counsel Thomas Gorman.

NEW YORK ( TheStreet) -- This time it could be different.

New York State Attorney General Eric Schneiderman's lawsuit against JPMorgan Chase ( JPM) over mortgage-backed securities sold by Bear Stearns before that company was acquired by JPMoran in March 2008 alleges fraud that led to investor losses of $22.5 billion, although the complaint filed in New York State court on Monday doesn't specify specific damages being sought.

JPMorgan for years has reported about "multiple civil actions" against Bear Stearns, "certain former subsidiaries," and "certain individuals formerly employed by Bear Stearns" resulting from losses to hedge fund investors, losses to common stock investors, and losses to investors purchasing collateralized debt obligations from Bear Stearns Asset Management, including Bank of America, which as of June 30 was seeking "approximately $535 million" in damages, as of June 30, according to JPMorgan's 10-Q filing.

So JPMorgan could just throw the new lawsuit onto the pile of festering Bear Stearns litigation, however, this time it is different. Schneiderman has the "bully pulpit" that goes along with his position, and the timely action as part of the Mortgage-Backed Securities Working Group of federal and state prosecutors formed by President Obama in January, fits in nicely leading into the November elections. "Wall Street as bad guy," continues to sell, for opportunistic politicians who continue to escape blame for the credit crisis.

"This is a politically motivated charge ," said Keith Bliss, a senior vice president of Cuttone, Inc., speaking on the floor of the New York Stock Exchange. Bliss also called the charge "a shakedown," and pointed out that "a lot of the attorneys general around the country are now bumping up against statutes of limitations."

Bliss added that it was "really odd" to see JPMorgan sued for the activities of Bear Stearns, when government officials were "on their knees begging JPMorgan to buy Bear Stearns so we wouldn't have this massive financial collapse."

Well all's fair when it comes to politics, and no good turn goes unpunished.

Bank of America ( BAC) faced similar pressure, when the company's executives got cold feet after agreeing in September 2008 to purchase Merrill Lynch for roughly $50 billion. With plenty of government pressure and assistance, Bank of America, of course, closed the Merrill deal.

Just last week, Bank of America agreed to A $2.43 billion settlement of a class action lawsuit by investors, alleging that the company and "certain of its officers and directors" made misleading statements heading into the Merrill deal's completion in January 2009."

JPMorgan Chase CEO James Dimon said in January 2009 that the company was "we are doing our part to help stabilize the financial markets and hasten recovery," as the company "assumed risk and expended resources to assimilate Bear Stearns and Washington Mutual."

We now see that the risk from JPMorgan's 2008 acquisitions continues to increase, four years on.

Bank of America's other major credit crisis acquisition was Washington Mutual, and BAC reported that during the second quarter alone, mortgage repurchase demands against the company rose by 41% to $22.7 billion, as of June 30.

JPMorgan faces far less putback demands from mortgage-backed securities investors, but the risk is still significant, and has the potential to grow. The company reported that as of June 30, there was $149 billion remaining in mortgage loans securitized from 2005 to 2008, and $47 billion of that total was past due 60 days or more, with $16 billion of the problem loans originated by Washington Mutual. JPM said that its "recognized mortgage repurchase liability" as of June 30 was $3.3 billion, declining from $3.6 billion as of Dec. 31.

While JPMorgan indicated this morning that it would fight Schneiderman's charges, it will be interesting to see what Dimon has to say when the company kicks off earnings season for the big banks on Oct. 13. Maybe after Schneiderman milks the lawsuit on television for all it's worth, the company will settle for a relatively small sum.

Rochdale Securities analyst Richard Bove reacted with customary flair on Tuesday, saying that the large banks located in New York City "should consider the benefits of moving their headquarters elsewhere," since "shareholders should not be forced to pay for continuous lawsuits because these banks are in New York."

Bove said that "for the past decade the state has made war on the industry," and that "what makes this suit unique is that Mr. Schneiderman is suing the bank for something it did not even do and he may be looking to gain $22 billion."

Thomas Gorman, a former Senior Counsel in the Securities & Exchange Commission's Division of Enforcement, says that "this suit is significant for two reasons. Initially, it is the first to be brought by the President's new working group. Perhaps more importantly, it is the first regulatory suit that focuses on the MBS market which was central to the market crisis and attempts to hold a major player in that market accountable for its action. This contrasts sharply with prior suits brought by the SEC which center on a transaction."

Considering the likelihood of JPMorgan Chase settling the charges, Gorman says "the case was just filed, so it is difficult to assess if they might settle. The fact of the matter is most of these cases do settle."

"Settling this case is complicated by the fact there are a number of class actions out there that have been pending for a while that make similar allegations, so resolving the case with the New York Attorney General could potentially impact the other cases."

Interested in more on JPMorgan? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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