Aruna Viswanatha, Reuters

A federal judge ruled on Wednesday that the United States can pursue parts of a civil lawsuit against Bank of America Corp over its sale of toxic mortgages to Fannie Mae and Freddie Mac , boosting a largely untested legal theory the government used in the case.

Bank of America had sought to dismiss the lawsuit, which seeks penalties under two laws. One is the False Claims Act, which is often used to target fraud against the government, and the other is the 1989 FIRREA law.

FIRREA does not yet have much of a track record in court, but the government turned to in the wake of the financial crisis as a potential means to target civil fraud involving financial institutions.

U.S. District Judge Jed Rakoff issued a two-page ruling that dismissed the claims in the lawsuit seeking penalties under the False Claims Act, but allowed the claims that seek penalties under FIRREA to advance. Rakoff, in New York, said he will explain the reasons for his decision at a later date.

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