The US Department of Justice (DoJ) has launched legal action against Barclays over the sale of toxic mortgage-backed securities in the lead-up to the financial crisis.
The civil complaint, filed in a New York court, accuses the British bank and employees of misrepresenting the quality of loans they sold to tens of thousands of investors between 2005 and 2007 in the run-up to the country's financial meltdown.
The DoJ claims that investors, which included credit unions, pension plans and university endowments, lost billions of dollars.
The lender falsely assured investors that it had excluded "unacceptable" loans, and that it had conducted due diligence on the loan pools it had securitised, according to the complaint.
Two former Barclays executives - John T Carroll and Paul Menefee - were named as individual defendants in the lawsuit accused of playing key roles in the alleged fraud. The DoJ has not specified a sum it is seeking from Barclays for settling the action.
Attorney general Loretta Lynch said in a statement: "As alleged in this complaint, Barclays jeopardised billions of dollars of wealth through practices that were plainly irresponsible and dishonest."
A Barclays spokesman said: "Barclays rejects the claims made in the complaint. Barclays considers that the claims made in the complaint are disconnected from the facts.
"We have an obligation to our shareholders, customers, clients and employees to defend ourselves against unreasonable allegations and demands. Barclays will vigorously defend the complaint and seek its dismissal at the earliest opportunity."
Separately, German lender Deutsche Bank has agreed to pay $7.2 billion (£5.8bn) as part of the DoJ's investigation into the sale of mortgage-backed securities. The figure is considerably lower than the $14bn originally sought. Credit Suisse has reached a $5.28bn settlement.
Banks have reached multi-billion-dollar settlements with the US government over the sale of securities that were promoted as safe investments in the lead-up to the housing market crash, but were in fact bundles of mortgages from borrowers unlikely to be able to repay their loans.