NEW YORK, May 3 (Reuters) – The government’s mortgage fraud lawsuit filed against Deutsche Bank AG on Tuesday takes advantage of a Civil War-era law that has rarely been used against Wall Street.

The suit, which accuses Deutsche Bank and its MortgageIT unit of lying to the government in order to obtain federal insurance on mortgages, relies on the False Claims Act, a law first passed in 1863 in response to contractors accused of gouging the Union army.

The statute provides for treble damages and penalties and has been used to take on industries that rely heavily on government contracts. In recent years, it has been the basis for securing multimillion settlements and fines from pharmaceutical companies accused of bilking government programs like Medicare and Medicaid.

The financial-services industry has not been a major target of the False Claims Act. But given the government’s outsized role in providing mortgage insurance, many litigation experts are not surprised that the law is now being used to target mortgage fraud.

The new government suit alleges that Deutsche Bank made false certifications to the U.S. Department of Housing and Urban Development about its mortgages in an effort to obtain insurance for them. The Federal Housing Authority, the world’s largest mortgage insurer, has paid $386 million in insurance claims on more than 3,100 mortgages endorsed by Deutsche Bank’s MortgageIT, according to the government.

Deutsche Bank said the claims are “unreasonable and unfair, and we intend to defend against the action vigorously.”

Marc Greenwald, a former federal prosecutor who is now a partner at the law firm Quinn Emanuel Urquhart & Sullivan, LLP, said it wouldn’t be surprising if the government files similar suits against other lenders.

“It’s great to see the government actually try to recoup some of the losses suffered by government agencies during the mortgage credit crisis,” said Greenwald.

Whistleblowers may have already filed False Claims Act cases against mortgage lenders, said Neil Getnick, managing partner of the law firm Getnick & Getnick LLP. Such cases, known as qui tam actions, are typically first filed under seal while plaintiffs seek to recruit the government to join their suit.

“The full impact of those suits may not be felt until later,” said Getnick.

No whistleblower suit was filed against Deutsche Bank before the case brought by the civil fraud unit of the Manhattan U.S. Attorney’s office. The unit was created in March 2010, to tackle a variety of financial frauds.

When he announced the formation of the unit, Manhattan U.S. Attorney Preet Bharara noted that bringing civil cases offered several advantages over criminal cases, including a lower standard of proof, the ability to freeze assets early, and broad pretrial discovery.

Sean Cenawood, who was in charge of the civil frauds unit before he left to become a partner at the law firm SNR Denton, said Bharara has given the unit a lot of resources and attention.

“The mandate from Preet and the administration in general when I was as there was ‘let’s not overlook the civil arrow in our quiver,'” said Cenawood.

At a press conference on Tuesday, Bharara said there was no evidence of criminal wrongdoing by individuals at Deutsche Bank.

The case is U.S. v. Deutsche Bank AG et al, U.S. District Court, Southern District of New York, No. 11-02976.

(Reporting by Andrew Longstreth; Additional reporting by Jonathan Stempel)

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