FDIC sues former execs, wives in WaMu failure

By Dow Jones Newswires-Wall Street Journal
Posted March 17 at 1:04 p.m.

The Federal Deposit Insurance Corp. sued three former executives of the failed Washington Mutual Bank, along with two of their wives, in a lawsuit filed on Wednesday.

The FDIC is seeking $900 million in damages, charging gross negligence and other failures by the former executives in the run up to WaMu’s collapse in September 2008, the largest U.S. banking failure.

An agreement by WaMu’s outside directors to pay $125 million to settle FDIC claims is pending approval by the bankruptcy courts, a person familiar with the matter said.

The former WaMu executives charged by the FDIC are Kerry Killinger, the former chief executive, and his wife Linda; Stephen Rotella, a former president and chief operating officer, and his wife Esther; and David Schneider, the former president of home loans for WaMu, who now works for WaMu’s new owner, JPMorgan Chase & Co.

Killinger attacked the lawsuit as “baseless and unworthy of the government,” according to his statement. “The factual allegations are fiction.”

Killinger also criticized federal regulators who, he said, had reviewed the bank’s financial position and “had offices on the premises’ ” in the months leading up to the bank’s collapse.

In a statement, Rotella said: “it is almost beyond belief that the FDIC would take action against an effective, hard-working bank manager who performed well under extraordinary conditions in an effort to save an important financial institution.”

Rotella added that the FDIC’s investigation “lacks credibility and is unfair, since it has flatly refused Mr. Rotella’s offer to meet, answer their questions,and explain his role as chief operating officer at the company. Furthermore, it is patently unfair for the FDIC to expect an individual to have perfect foresight into a crisis that the FDIC itself did not see coming.”

The other defendants couldn’t immediately be reached for comment Thursday. A JPMorgan spokeswoman declined to comment and said Schneider also declined to comment.

The WaMu suit is the FDIC’s highest-profile action to bring cases against bank executives for alleged wrongdoing in the financial crisis. As of March 15, the FDIC had authorized the filing of suits seeking to recover $3.57 billion from 158 officers and directors at failed banks.

WaMu is the sixth of more than 300 banks that failed since 2008 to haveĀ  become the target of an FDIC suit against its former officers and directors.

“While the FDIC does not comment on any specific pending litigation, the FDIC as receiver will initiate lawsuits against former officers, directors and other professionals of failed institutions when the case has merit and is expected to be cost effective,” FDIC spokesman Andrew Gray said Thursday.

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  1. R. A. Stailey March 17 at 4:09 pm

    What took so long? Why not criminal charges,too?

  2. SueSantoFan March 17 at 8:18 pm

    I hope they all lose their shirts and everything else. How dare they mess with so many honest consumers! Then they expected to be bailed out by the taxpayers.