WASHINGTON (AP) — Federal bank regulators have sued three former top executives of Washington Mutual, the biggest U.S. bank ever to fail, accusing them of negligence in allowing risky mortgage lending.
The Federal Deposit Insurance Corp. filed the civil lawsuit recently against former WaMu CEO Kerry Killinger, ex-Chief Operating Officer Stephen Rotella and David Schneider,
who headed the bank’s home loans division.
The FDIC also named Killinger’s and Rotella’s wives in the suit filed in federal court in Seattle.
The FDIC said the three executives pushed for expansion of WaMu’s risky lending even though they knew or should have known that its loan standards and controls were inadequate. The Seattle-based bank, with $307 billion in assets, collapsed in September 2008 at the height of the financial crisis and was sold for $1.9 billion to JPMorgan Chase & Co. in a deal brokered by the FDIC.
Killinger, Rotella and Schneider, “through their gross negligence, breached their duties of care,” the FDIC alleged in the suit.
The agency said they acted with “reckless disregard.” Among other things, they adopted imprudent lending policies and caused the bank to make home loans “with little or no regard for borrowers’ ability to repay them,” the FDIC said.
The FDIC has been seeking about $900 million in damages in private negotiations with the executives. The suit didn’t specify the amount the agency was seeking in the case.
Killinger and Rotella disputed the FDIC’s allegations.
In a statement on Killinger’s behalf, his attorneys called the suit “baseless and unworthy of the government” and “political theater.”
Rotella issued a statement saying, “This action runs counter to the facts about my relatively short time at the company. It is also unfair and an abuse of power.”
An attorney for Schneider, who works at JPMorgan Chase, couldn’t immediately be reached for comment. JPMorgan spokesman Thomas Kelly declined to comment.
Last July the FDIC sued four former executives of failed California-based IndyMac Bank, seeking $300 million in damages.
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