Ten months ago, the U.S. Department of Justice announced that it would team with state attorneys general to share resources and plot strategy in potential legal action against banks involved in the mortgage crisis.

The effort, the Residential Mortgage-Backed Securities Working Group, was designed to put more ammunition in the legal arsenals of federal and state prosecutors. And since its formation, 200 state and federal officials have been taking part.

On Oct. 1—with the New York attorney general’s suit against JPMorgan Chase & Co.—they fired their first shot. The suit targets JPMorgan unit Bear Stearns & Co. as well as EMC Mortgage, a Bear Stearns lending unit, alleging deceptive practices in the packaging and sale of residential mortgage-backed securities.

Read the complaint.

The next day in Washington, D.C., New York Attorney General Eric Schneiderman and Acting Associate Attorney General Tony West touted the joint efforts at a news conference. Schneiderman said U.S. attorneys offices had helped conduct 40 interviews across the country. “It is a case brought by our office, but as we’ve all indicated, it came out of a large and ongoing collective effort,” Schneiderman said. “Every part of the working group has been essential to us being able to move the investigation forward this quickly to bring a complaint of this breadth.”

Meanwhile, however, JPMorgan suggested that there was little new in the state’s claims, which were, in any case, unfounded.

“We’re disappointed that the New York A.G. 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,” the bank said in a statement. “We intend to contest these allegations.”

Though New York is the sole plaintiff, West, the Justice Department’s third in command, said the suit against JPMorgan is part of the federal government’s effort “to ensure that the people of our nation are not victimized by fraud and, if they are, that we bring the perpetrators to justice.”

West, Schneiderman and other officials, including Assistant Attorney General Lanny Breuer and Shaun Donovan, the Housing and Urban Development secretary, touted the collaboration of the special mortgage fraud unit.

“It’s enabled us to move forward more quickly and more aggressively than we would have to bring our…case,” Schneiderman said. “We’re looking forward to more cases and to working with our colleagues to take advantage of the combination of jurisdiction, of resources and of skill that is unique to this working group.”

For private lawyers representing banks, the combined firepower of the feds and state prosecutors is a potentially chilling prospect. One Washington lawyer, who spoke on condition of anonymity because he represents banking clients that may be sued, said “the Justice Department acting alone would never bring a case like this without giving a company an opportunity to present its side of the story. The department would also be sensitive to timing, which in this instance seems very peculiar.”

New York’s Powerful Weapon

One of five officials cochairing the working group, Schneiderman was a natural choice to launch the first attack. New York prosecutors have been working on their investigation since spring 2011. And Schneiderman has a powerful weapon to punish Wall Street—the state’s Martin Act. The law authorizes both civil and criminal claims in state court against securities fraud, although there are no criminal claims in the JPMorgan suit. It “gives an immense amount of power to the New York attorney general,” said David Reiss, a Brooklyn Law School professor who has written about mortgage markets, predatory lending and housing policy. Under the act, the state has a lower burden of proof than proceeding with a similar suit in federal district court, Reiss said. “It makes New York courts an attractive vehicle to push certain issues,” he said.

(Schneiderman drew laughter at the press conference when he said “we have an extraordinary judiciary in the state of New York”—a nod to the home court advantage the law gives him.)

Read a primer on the Martin Act.

The JPMorgan case has a “well-worn path” in the New York state courts, said Robert Kurucza, a partner in Goodwin Procter in Washington and former director of the Securities and Corporate Practices Division of the Office of the Comptroller of the Currency.

Successive state attorneys general have used the breadth of the Martin Act to pursue civil claims that might otherwise fall within the jurisdiction of federal financial regulators, and the JPMorgan suit is “carrying on the tradition,” Kurucza said.

“Given the subject matter and magnitude of it, we can anticipate actions by the New York attorney general are likely to continue,” Kurucza said. “Clearly, the banking industry is trying mightily to put these cases behind them.”

Schneiderman said additional suits would be forthcoming. He didn’t elaborate on timing, and he didn’t say whether subsequent cases would end up in federal district court.

The JPMorgan suit alleges “multiple fraudulent and deceptive practices” in the promotion and sale of residential mortgage-backed securities from 2005 to 2007. The complaint alleges that the defendants “systematically failed to evaluate the loans” and ignored defects uncovered in limited review. The suit said loans were made to borrowers “who were unable to repay, were highly likely to default and did in fact default in large numbers.”

The civil suit applies to conduct at Bear Stearns before it was acquired at a fire sale at the request of the U.S. government in 2008.

JPMorgan pledged its cooperation with state and federal investigators. Schneiderman described the discussions with the bank over the past few months as a “lively interchange.”

It wasn’t immediately clear which law firm was representing JPMorgan in the litigation. A JPMorgan spokeswoman declined to discuss outside counsel.

West defended the timing of the lawsuit, which was announced as President Barack Obama and Republican presidential candidate Mitt Romney prepared for their first debate.

“We have been working as a group since [the collaboration] was formed earlier this year,” West said at the press conference. “We have been working on collective efforts on many different cases. When cases are mature and ready to be brought, we bring them.”

The Justice Department has been criticized in some quarters for not doing enough to confront financial industry abuses. When U.S. Attorney General Eric Holder announced formation of the working group in January, he noted that reckless or unethical behavior isn’t necessarily criminal.

“The notion that there has been inactivity over the course of the last three years is belied by a troublesome little something called facts,” Holder then told reporters. “We have been doing a great deal.”

Schneiderman said at the press conference that additional cases will “ultimately do a great deal to reassert the principle that no one is above the law and that the folks who brought down the American economy will face justice.”

Private Suits Point the Way

But the attorney general’s 33-page complaint also underscores just how indebted the government’s case is to the private lawyers who have challenged big banks that issued and underwrote toxic residential mortgage-backed securities.

The filing repeatedly references the 329-page amended complaint against JPMorgan that Quinn Emanuel Urquhart & Sullivan filed for the Federal Housing Finance Agency in June, as part of the FHFA’s litigation blitz against 17 banks. (Kasowitz Benson Friedman & Torres also represents the FHFA in some of the cases.) In a press release issued Oct. 2, Schneiderman touted the FHFA’s “key role” in helping to build the case, before mentioning either the Securities and Exchange Commission or the Justice Department’s efforts.

Read the FHFA complaint.

To back the crucial allegation that Bear Stearns abandoned loan underwriting standards, the attorney genera’s complaint cites an analysis of a random sample of securitized home loans that Quinn Emanuel built into the FHFA’s complaint. And there are other, less explicit borrowings from the ongoing FHFA litigation, as well as from the securities class action litigation that plaintiffs lawyers at Bernstein Litowitz Berger & Grossman and Wolf Popper are leading against JPMorgan in New York federal court. There are also clear echoes of the claims that Patterson Belknap Webb & Tyler brought against JPMorgan on behalf of bond insurers, as The Wall Street Journal noted on Oct. 2.

Lawyers already pressing residential mortgage-backed securities claims against JPMorgan declined to discuss any nexus between their cases and Schneiderman’s complaint. However, one lawyer opposed to JPMorgan, who requested anonymity, confirmed that federal authorities have sought guidance from his firm in preparing cases against JPMorgan and other banks.