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New York AG on Bear Stearns mortgage bonds: "flamboyant fraud"

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Remember toxic assets? The lousy mortgages — bundled into even lousier bonds — that big banks sold off until the whole thing went bust. We now have the first major case filed against a bank that went down with the mortgage-backed securities business.

“We’re prosecutors; we bring cases when they’re ready,” says New York Attorney General Eric Schneiderman. “And you will see more cases in the weeks and months ahead.”

A joint working group President Obama set up earlier this year has filed suit against JP Morgan Chase, which now owns Bear Stearns, the bank that went bust. Schneiderman, in addition to being the attorney general of New York, is co-chairman of that state-federal task force.

His suit accuses Bear Stearns of deceptive and fraudulent practices and seeks damages for investors after the company (allegedly) sold bonds that were backed by mortgages it knew weren’t going to pay off.

“All we’re doing is sending the message that there’s one set of rules for everyone,” says Schneiderman. “If we said this flamboyant fraud, this gross misconduct in misleading investers by a firm that was really at the top of this market — if we let them go just because of the chain of title, that would send a terrible message.”

Schneiderman says “folks are looking for accountability” — and if that comes from whoever happens to purchase a company like Bear Stearns, so be it.

While he admits that lawsuits like his will not get the economy back on track, he says that’s not exactly the point.

“The next time around you cannot get away with things just because you’re big or influential or powerful,” says Schneiderman.

The suit is being prosecuted as a civil suit, not a criminal one. And while the attorney general wouldn’t comment on whether it should be tried in criminal court, he did note that it would be “sooner rather than later” before Americans saw “additional actions.”

Such as, perhaps, an actual arrest.

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