Bloomberg News has a story of the day, reporting that JPMorgan Chase/Bear Stearns is being sued by the insurance company Ambac for fraudulently inducing it to insure toxic mortgages and tricking investors into buying them.

Ho hum, you say. What’s new about this that we haven’t heard in the last three years?

Well, for one, Ambac says it has emails that show Bear Stearns knew they were junk loans and that it set out to take mortgages, bundle them into securities to sell to investors, and then demand its money back on the original mortgages—all while denying repurchase demands by the investors it had screwed.

Here’s where I emphasize that these are allegations in a lawsuit, not proven facts. But they’re fertile ground for reporters to investigate. Bloomberg:

Ambac also alleges in its proposed complaint that, as early as 2005, Bear Stearns was making a strategy out of earning “double” money on shoddy mortgages. First Bear Stearns sold securities backed by the debt, then forced the mortgage lender that sold it the loans to pay up when they turned delinquent in the first few months or were otherwise proved to have breached originators’ representations, Ambac said.

Bear Stearns generally wouldn’t refund investors with that second pool of money, Ambac said in the filing.

If this is true, it’s a huge story—pure-D fraud.

Bloomberg also reports that Ambac says Bear buried evidence from a third party that most of its securities were faulty:

The bank also ignored the findings of mortgage-review firm Clayton Holdings LLC in abandoning mortgage repurchases that Bear Stearns had been considering in early 2008 stemming from a pool of 596 of loans in bonds guaranteed by Ambac, according to the insurer’s amended complaint.

Clayton found that 56 percent of the loans involved “material” breaches of Bear Stearns’s contractual promises, according to the filing, which cited a copy of a November 2007 document from the review firm to the company.

Fifty-six percent.

Teri Buhl, over at The Atlantic reports that “the lawsuit’s supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a ‘sack of shit.’”

Making matters worse for Bear and JPMorgan, as Zero Hedge points out, is this from the Ambac lawsuit:

Knowing that its fraudulent and breaching conduct was resulting and would result in grave harm to Ambac, Bear Stearns then implemented a trading strategy to profit from Ambac’s potential demise by “shorting” banks with large exposure to Ambac-insured securities.

Buhl puts it this way:

Then in November 2007, Verschleiser wrote to his risk committee that he knew insurers for mortgage securities were going to have big financial problems. He suggested they multiply by ten times the short bet he’d just made against stocks like Ambac. These e-mails show Verschleiser’s trading desk bragging to firm leadership that he made $55 million off shorting insurers’ stock in just three weeks.

Zero Hedge sums it up best:

In a nutshell: JPM committed fraud through misrepresentation, then wilfully and maliciously traded against the entities it had sold misrepresented securities to, and lastly, when even all this failed to rescue the failed bank, it was rescued, courtesy of the US taxpayers. Only in America will this lead to absolutely no jail time whatsoever.

After all we’ve seen since 2007, it’s hard to bet against cynicism.

Here’s the lawsuit, which makes for very interesting reading:

Exhibit 1 - Proposed Amended Complaint

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.