The Federal Deposit Insurance Corp. filed suit against former executives of Washington Mutual, including former CEO Kerry Killinger, former President Steve Rotella, and their wives, in a case that seeks to recover unspecified damages at trial.
The suit, filed in the U.S. District Court in Western Washington, also seeks to freeze the estates of the Killingers and Rotellas. It also names David Schneider, the former head of WaMu‘s home loans division, who now works at JPMorgan Chase.
Earlier, the FDIC said it would seek $1 billion in damages, but the amount wasn’t specified in the suit.
In its 63-page complaint, the FDIC said that it’s suing the former, “highly-paid” WaMu executives to hold them responsible for losses in WaMu’s mortgage division. WaMu was closed by the federal Office of Thrift Supervision and its assets turned over to the FDIC in September 2008, marking the largest bank failure in U.S. history.
The complaint alleges that Killinger, Rotella and Schneider caused WaMu “to take extreme and historically unprecedented risks with WaMu’s held-for-investment home loans portfolio. They focused on short term gains to increase their own compensation, with reckless disregard for WaMu’s longer term safety and soundness.”
The executives and their attorneys could not immediately be reached for comment. In a statement, the FDIC said it files suits against former officers directors and other “professionals of failed institutions “when the case has merit and is expected to be cost effective.”
“This is done on behalf of creditors of the failed institution,” the FDIC said in its statement. “The FDIC investigates every failure to determine whether there is a solid basis for legal action and a sound source for recovery.”
The suit does not specify damages, although the FDIC previously said it would seek to recover up to $1 billion from all three former WaMu executives.
The suit also alleges that Killinger and his wife, Linda, sought to defraud WaMu’s creditors by transferring their multi-million dollar home in Palm Beach, Calif., into two personal trusts in August of 2008, a month before the bank failed. Linda Killinger was appointed trustee of those accounts. Killinger also transferred half of the couple’s property in the Highlands area of Seattle into a trust in Linda Killinger’s name.
Both these actions were “made with actual intent to hinder, delay or defraud Kerry Killinger’s present and future creditors,” the FDIC suit alleges. The government agency notes that Killinger faced numerous lawsuits at the time, and WaMu had lost more than $9 billion in a bank run.
Similarily, the suit alleges that Rotella and his wife, Esther, transferred their house in Orient, New York, into two residential trusts in the spring of 2008, and Rotella also transferred $1 million to Esther Rotella after WaMu failed, according to the complaint. “… the transfers were not disclosed to or were concealed from his present and future creditors,” the suit alleges.
KIRSTEN GRIND covers banking, finance and residential real estate for the Puget Sound Business Journal. She is currently on book leave.
- Source: FDIC may sue Killinger, other WaMu execs (seattletimes.nwsource.com)
- FDIC to seek $1B from former WaMu execs (bizjournals.com)
- The FDIC Has Sent Letters To Former WaMu Execs Warning Them Of A Possible $1 Billion Lawsuit (JPM) (businessinsider.com)
- WaMu files new bankruptcy plan (seattletimes.nwsource.com)
- FDIC warns of possible WaMu legal action – WSJ (reuters.com)
- FDIC May Sue WaMu Executives (online.wsj.com)
Brett, where would you start?
Hey Fred – It’s about time, isn’t it?! Now on to the rest of Wall Street!