NEW YORK (Reuters) - A federal indictment against Wilmington Trust Corp and four former executives for allegedly hiding soured loans may need to be dismissed if it was obtained through false grand jury testimony, lawyers for the defendants said on Tuesday.

If true, the lawyers’ allegations, made in a court filing ahead of a scheduled Oct. 10 trial, could undermine the government’s first indictment against a recipient of federal bailout money during the 2008-2009 financial crisis.

“The defendants’ motion is without merit and the government will be filing a response in due course,” David Weiss, the acting U.S. attorney in Delaware, said in an email.

M&T Bank Corp MTB.N, the Buffalo, New York-based bank that bought Wilmington in May 2011, is not accused of wrongdoing.

Prosecutors accused the defendants of having hidden Wilmington’s deteriorating finances from October 2009 to November 2010 by underreporting its matured past-due loans, through what the government called a “waiver” practice.

The four former executives who are defendants are former president Robert Harra, chief financial officer David Gibson, controller Kevyn Rakowski and chief credit officer William North.

They have called Wilmington’s loan reporting transparent, including to the Federal Reserve Bank of Philadelphia.

According to Tuesday’s filing, the government knew it was, based on a newly disclosed report from a Federal Bureau of Investigation agent about an interview with David Fomunyam, a senior Fed banking examiner.

The defendants said the report showed that Fomunyam told the government in 2013, two years before the original indictment, that he had known contemporaneously that Wilmington “‘never reported their matured loans,’ putting the lie to the accusation that Wilmington Trust deceived the Federal Reserve.”

According to the defendants, the government nonetheless presented grand jury testimony that neither Fomunyam nor a colleague was aware of the loan waivers, and withheld its “highly exculpatory” information for two years.

“It appears that the government ran afoul of a basic prohibition - that the government may not secure an indictment based on the knowing presentation of false testimony to the grand jury,” according to the defendants.

They are seeking permission to gather evidence concerning whether prosecutors knowingly presented false grand jury testimony, and a hearing to consider possible dismissals.

A Philly Fed spokeswoman declined to comment, as did an M&T spokesman.

Wilmington had received $330 million of bailout money. But mounting construction loan and commercial mortgage losses led to its sale to M&T at a 46 percent discount, ending more than a century in business.

The case is U.S. v. Wilmington Trust Corp et al, U.S. District Court, District of Delaware, No. 15-cr-00023.