NEW YORK ( TheStreet) -- Shares of Bank of America ( BAC - Get Report) on Wednesday were down over 2% in early afternoon trading, after the bank was charged with securities fraud by the Department of Justice and the Securities and Exchange Commission.

The Justice Department late on Tuesday announced it had filed a civil complaint in the U.S. District Court in Charlotte, N.C., charging Bank of America with making "false and misleading statements," when it sold over $850 million in mortgage-backed securities in February 2008 to a group of investors that included the Federal Home Loan Bank of San Francisco and Wachovia Bank.

Wachovia Bank and its parent company were acquired by Wells Fargo ( WFC - Get Report) in December 2008.

The Justice Department said that Bank of America and subsidiaries, including Merrill Lynch, "lied to investors about the relative riskiness of the mortgage loans backing the residential mortgage-backed securities (RMBS), made false statements after intentionally not performing proper due diligence and filled the securitization with a disproportionate amount of risky mortgages originated through third party mortgage brokers."

According to the complaint, 40% of 1,191 mortgage loans in a pool securitized by Bank of America failed "to materially adhere to Bank of America's underwriting standards."

The SEC filed a similar complaint, saying in a press release that "Bank of America failed to tell investors that more than 70 percent of the mortgages backing the offering - called BOAMS 2008-A - originated through the bank's 'wholesale' channel of mortgage brokers unaffiliated with Bank of America entities."

The SEC took the opportunity to be even more colorful than the Justice Department in its release, saying the bank "knew that such wholesale channel loans - described by Bank of America's then-CEO as 'toxic waste' - presented vastly greater risks of severe delinquencies, early defaults, underwriting defects, and prepayment."

Bank of America spokesman Lawrence Grayson in an email expressed confidence in the bank's ability to defend itself in court: "These were prime mortgages sold to sophisticated investors who had ample access to the underlying data and we will demonstrate that. The loans in this pool performed better than loans with similar characteristics originated and securitized at the same time by other financial institutions. We are not responsible for the housing market collapse that caused mortgage loans to default at unprecedented rates and these securities to lose value as a result."

KBW analyst Christopher Mutascio in a note to clients Tuesday night estimated that the bank's losses on the loans making up the mortgage securitization "could reach $120 million if the anticipated future losses come to fruition."

That's a drop in the bucket for Bank of America, as the company works to move past its legacy mortgage mess. However, Mutascio also pointed out that civil penalties from the lawsuits could "equal $1.1 million per violation, or, for a continuing violation, up to $1.1 million per day or $5.5 million, whichever is less pursuant to(12 U.S.C. § 1833(a)(b)(1)-(2)."

So, with potentially 476 violations, with a maximum civil penalty of $5.5 million apiece, the potential maximum civil penalty would be $2.618 billion. While that is a ridiculous figure, it shows that Bank of America may ultimately settle for substantial amount.

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

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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 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.