(Recasts; adds background on negotiations, details)
By Karen Freifeld
NEW YORK, Dec 22 (Reuters) - The U.S. Department of Justice on Thursday sued Barclays Plc and two former executives on civil charges of fraud in the sale of mortgage-backed securities during the run-up to the 2008-09 financial crisis.
The lawsuit was filed after Barclays resisted a penalty the U.S. government had sought in settlement negotiations, a person familiar with the matter said. The person would not disclose the government's demand.
Major U.S. banks, including JPMorgan Chase & Co and Bank of America Corp, have paid tens of millions of dollars to settle similar claims over misconduct in the sale and pooling of mortgage securities, which helped to cause the financial crisis.
Barclays was among a handful of European banks still under investigation by the Justice Department, according to company disclosures. Deutsche Bank and Credit Suisse are also in settlement talks, sources have said.
Barclays is accused of deceiving investors about the quality of loans underlying tens of billions of dollars of mortgage-backed securities between 2005 and 2007, according to the lawsuit filed in U.S. District Court in Brooklyn.
Loans had been made to borrowers with no ability to repay and were based on inflated home appraisals, the complaint said.
According to the lawsuit, more than half the underlying loans in $31 billion worth of mortgage loans pooled into 36 deals defaulted.
"With this filing, we are sending a clear message that the Department of Justice will not tolerate the defrauding of investors and the American people," U.S. Attorney General Loretta Lynch said in a statement.
In a separate statement, Barclays said the claims in the lawsuit are "disconnected from the facts" and that it has an obligation to defend against "unreasonable allegations and demands."
A Justice Department spokesman would not comment on negotiations or the penalty sought during talks. The lawsuit does not include a penalty amount.
A Barclays spokesman would not comment on negotiations beyond the statement.
The London-based bank's U.S.-traded shares ended down 1.8 percent at $11.07 in regular trading on Thursday.
LOOKING AHEAD
Barclays has set aside $3.1 billion to generally cover litigation and penalties, but has not made a specific provision for the mortgage probe.
A settlement in excess of $1.5 billion would lead to increased provisions and could impact the bank's core capital ratio, JPMorgan analysts have said.
In addition to Barclays and its affiliated companies, the complaint targets two former executives: John T. Carroll and Paul Menefee, both former managing directors at Barclays Capital units.