A New York judge on Friday said former U.S. President Donald Trump must face a lawsuit by the state's attorney general accusing him of fraudulently overvaluing his namesake real estate company’s assets and his own net worth.

Attorney General Letitia James had sued Mr. Trump, his adult children Donald Jr., Eric and Ivanka and the Trump Organization last September over an alleged scheme to inflate Mr. Trump’s assets by billions of dollars through a decade of lies to banks and insurers, in what she called a “staggering” fraud.

Justice Arthur Engoron of the state Supreme Court in Manhattan rejected defense claims that Attorney General James waited too long to sue, fell short of establishing fraud, and should have better justified the $250 million of damages she is seeking.

He also said Ivanka Trump could be sued despite her claims she had not falsified valuations and not worked for the Trump Organization since 2017, saying she could be liable for participating in “continuing wrongs.”

The judge also decided not to sanction the defendants for making arguments including that Attorney General James was pursuing a political “witch hunt” and lacked legal authority to sue.

“Sophisticated defense counsel should have known better,” Justice Engoron wrote nonetheless.

Lawyers for the defendants did not immediately respond to requests for comment.

In a statement, Attorney General James said Mr. Trump “engaged in years of extensive financial fraud to enrich himself and cheat the system,” and must defend himself in court.

She also wants to stop the Trumps from running businesses in New York, and ban Mr. Trump and his company from acquiring real estate there for five years. An Oct. 2 trial is scheduled.

The lawsuit is one of many legal woes affecting Mr. Trump, who is seeking another term as president in 2024.

They include criminal investigations related to the FBI’s seizure of government documents from his Florida home, and his role in efforts to overturn or interfere with 2020 presidential election results.

The Manhattan district attorney’s office is also conducting a criminal probe relating to Attorney General James’ civil case, and the Trump Organization faces a Jan. 13 sentencing after being convicted of tax fraud in another New York case.