FDIC Files Lawsuit Against Former WaMu Execs and Wives

The ""Federal Deposit Insurance Corporation"":http://www.fdic.gov/ (FDIC) filed a lawsuit last week against three former Washington Mutual (WaMu) executives and two of their wives, alleging that they ran the bank into the ground in order to increase their own compensation.

[IMAGE]

The lawsuit names former WaMu CEO Kerry Killinger, former COO Stephen Rotella, and home loans president David Schneider, as well as Linda Killinger and Ester Rotella.

The lawsuit alleges that the three executives ""focused on short-term gains to increase their own compensation, with reckless disregard for WaMu's longer term safety and soundness.""

It continues, ""Their negligence, gross negligence, and breaches of fiduciary duty caused WaMu to lose billions of dollars.""

Washington Mutual was the largest U.S. bank ever to go under, and was purchased by ""JP Morgan Chase"":http://www.jpmorganchase.com for less than $2 billion.

[COLUMN_BREAK]

The FDIC alleges that Killinger encouraged risky practices and enforced the practices with the help of Schneider and Rotella, even though all of them knew that the housing market was in a ""bubble"" and such practices could not be sustained.

The bank underwrote stated income and stated asset loans with little or no documentation, made loans to borrowers with high debt-to-income rations, and made a significant amount of subprime loans to borrowers with bad credit and low credit scores.

Furthermore, the agency says the bank concentrated its risky loans in California and Florida, areas where prices had risen the most and were therefore at the highest risk of downfall.

When the bubble finally burst, Kerry and Linda Killinger transferred their residences in California and Washington to four residential trusts, which the FDIC alleges was done with an intent to ""hinder, delay or defraud"" creditors.

The Rotellas made similar moves with their home in New York, which the FDIC alleges was for the same reason.

""During the period from January 2005 to September 2008, [the] defendants collectively received more than $95 million in compensation. As the losses mounted in the spring and summer of 2008, Killinger and Rotella recognized the potential problems and took steps to move at least part of their wealth beyond the reach of their creditors,"" the suit says.

The suit ends with a request from the FDIC for relief, in an award of damages to be established at the trial, prejudgment interest on such damages, costs and expenses recoverable from the proceeding, and whatever further relief the court may deem proper.