RCMP Sgt. Patrick Webb said the criminal investigation will be lengthy. (CBC)

The RCMP and Calgary police are launching a criminal investigation into what could be the biggest mortgage fraud in Canadian history.

The two forces announced Thursday they will probe allegations made by the Bank of Montreal, which has launched a civil lawsuit against hundreds of Alberta defendants it says perpetrated a sophisticated fraud against the bank that generated millions of dollars in falsely inflated mortgages.

The suit alleges that between 2006 and 2007, 14 inter-connected groups ran the scam, which may cost the bank as much as $30 million.

Among the Alberta lawyers, mortgage brokers and four BMO employees named in the lawsuit is Conservative MP Devinder Shory, who is a lawyer.

It's unclear whether Shory can remain in caucus now that a criminal investigation is underway.

CBC News has learned that the Law Society of Alberta will investigate Shory, as well as John Casuga, a former Alberta Liberal official and 17 other lawyers who are being accused of negligence.

None of the allegations contained in the lawsuit has been proven in court.

Voluminous case amassed

Sources told CBC News last week that the RCMP and Calgary police told BMO in an April meeting that they were not interested in pursuing a criminal investigation. But the police appear to have changed their minds.

During its four-year investigation of the alleged fraud, BMO amassed thousands of pages of documents. (CBC)

Thursday's announcement that the RCMP's commercial crime section and the Calgary police economic crimes unit will conduct the probe comes after intense media and public scrutiny.

"As this investigation is in its very early stages, it is not possible to say exactly how long it will take to be completed," said RCMP Sgt. Patrick Webb in a statement.

"There is a very large amount of documentation to examine and many interviews to complete. Therefore, it should be recognized that this should be expected to be a lengthy investigation."

BMO has been looking into the alleged fraud since 2006, amassing more than 35,000 documents as part of its case.

Webb said investigators would be speaking to people named in the civil lawsuit as well as to bank employees and other individuals.

"Just because you're named in the lawsuit doesn't mean that you're automatically a suspect in this," Webb said. "That's still to be developed. We're talking the difference between criminal and civil processes here."

Sophisticated scam

BMO alleges ringleaders of the fraud network would buy properties at market value but convince the bank they were worth much more and subsequently obtain a grossly inflated mortgage. They would then pocket the difference.

The architects of the fraud are accused of recruiting people, mostly new immigrants, to be "straw buyers," individuals who allow their name to be used to obtain the mortgage on a property in exchange for a payment.

Eventually, the fraudsters walk away from the scheme, leaving the straw buyer on the hook. The bank is usually forced to foreclose on the mortgage.

With files from the CBC's Alison Myers