JPMorgan bought the investment bank Bear Stearns in March 2008.
It said it would contest the allegations.
This is the first action to come out of a working group created by US President Barack Obama looking into the causes of the 2008 financial crash.
The civil suit, filed by New York Attorney General (NYAG) Eric Schneiderman, accuses Bear Stearns of failing to ensure the quality of loans underlying residential mortgage-backed securities.
It claims the bank, "systematically failed to fully evaluate the loans, largely ignored the defects that their limited review did uncover, and kept investors in the dark about both the inadequacy of their review procedures and the defects in the underlying loans".
It says this lead to the inclusion of mortgages on which borrowers were likely to default and that losses in 2006 and 2007 totalled more than a quarter of the original value.
The action asks that the company be made to pay an undisclosed amount of damages "caused, directly or indirectly, by the fraudulent and deceptive acts".
However, in a statement, JPMorgan said the allegations concern actions by Bear Stearns before they bought the investment bank: "The NYAG civil action relates to Bear Stearns, which we acquired over the course of a weekend at the behest of the US Government. This complaint is entirely about historic conduct by that entity".
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