Administrative Action You Can Use: F.D.I.C. Sues WAMU (now Chase) Ex-Chief

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“They focused on short-term gains to increase their own compensation, with reckless disregard for WaMu’s long-term safety and soundness,” the agency said in the 63-page complaint. “The F.D.I.C. brings this complaint to hold these highly paid senior executives, who were chiefly responsible for WaMu’s higher-risk home lending program, accountable for the resulting losses.”

EDITOR’S NOTE: READ THE COMPLAINT. In my opinion it constitutes an administrative finding by the lead federal agency that lending practices were fatally defective. In my opinion this constitutes enough, through judicial notice, to shift the burden of proof onto the other side as to most of your defenses, affirmative defenses and counterclaims. In fact, if you look at ANY complaint filed by an administrative agency, I believe it can be used as prima facie finding of wrong-doing. To the extent that a complaint from an administrative agency states that it has performed an investigation and affirmatively alleges that a particular defendant did something wrong as specifically set forth in that complaint, it is my opinion that through judicial notice, this constitutes a final finding of fact by an official agency which MUST be taken as a prima facie case.

PRACTICE NOTE: It won’t carry the same weight as a written decision following an administrative hearing, but the same law can be applied and it will carry a lot of weight.

F.D.I.C. Sues Ex-Chief of Big Bank That Failed


The Federal Deposit Insurance Corporation sued the former chief executive of Washington Mutual and two of his top lieutenants, accusing them of reckless lending before the 2008 collapse of what was the nation’s largest savings bank.

The civil lawsuit, seeking to recover $900 million, is the first against a major bank chief executive by the regulator and follows escalating public pressure to hold bankers accountable for actions leading up to the financial crisis.

Kerry K. Killinger, Washington Mutual’s longtime chief executive, led the bank on a “lending spree” knowing that the housing market was in a bubble and failed to put in place the proper risk management systems and internal controls, according to a complaint filed on Thursday in federal court in Seattle.

David C. Schneider, WaMu’s president of home lending, and Stephen J. Rotella, its chief operation officer, were also accused of negligence for their roles in developing and leading the bank’s aggressive growth strategy.

“They focused on short-term gains to increase their own compensation, with reckless disregard for WaMu’s long-term safety and soundness,” the agency said in the 63-page complaint. “The F.D.I.C. brings this complaint to hold these highly paid senior executives, who were chiefly responsible for WaMu’s higher-risk home lending program, accountable for the resulting losses.”

In addition, the complaint says that Mr. Killinger and his wife, Linda, set up two trusts in August 2008 to keep his homes in California and Washington out of the reach of the bank’s creditors. Months earlier, in the spring of 2008, Mr. Rotella and his wife, Esther, made similar arrangements. The F.D.I.C. is seeking to freeze the assets of both couples and named the wives as defendants in the lawsuit.

In unusually vigorous denials, Mr. Killinger and Mr. Rotella came out swinging against the F.D.I.C. Mr. Killinger said the agency’s claims were “baseless and unworthy of the government” and its legal conclusions were “political theater.” Mr. Rotella said the action “runs counter to the facts about my relatively short time at the company,” calling it “unfair and an abuse of power.” He said the trust was for normal estate planning purposes and was set up before the bank’s downfall. Mr. Schneider, who is represented by the same lawyer as Mr. Rotella, did not release a public statement.

Although the F.D.I.C. is mainly known for its role in shuttering failed lenders, the agency has a legal obligation to bring lawsuits against former directors and officers when it finds evidence of wrongdoing.

So far, the F.D.I.C. has brought claims against 158 individuals at about 20 small banks that failed during the recent crisis. The agency is seeking a total of more than $2.6 billion in damages. But the $900 million case against the former WaMu officials is its biggest and most prominent action to date.

Federal regulators have come under fire for failing to hold executives responsible for their involvement in the worst financial crisis since the Great Depression. Last fall, the Securities and Exchange Commission reached a settlement with Angelo R. Mozilo, the former chief executive of Countrywide Financial, to pay a $22.5 million penalty over misleading investors about the financial condition of the giant mortgage lender.

The New York attorney general’s office has brought a civil suit against Kenneth D. Lewis over improper disclosures related to the 2008 rescue of Merrill Lynch by Bank of America, of which he was chief executive.

But several investigations into the actions of executives at the American International Group, Lehman Brothers and other financial firms have stalled — especially criminal cases, which have a much higher burden of proof.

The F.D.I.C., meanwhile, has been under intense pressure to recoup as much money as possible on behalf of Washington Mutual bondholders, who were outraged over its sale in September 2008. Critics said the agency moved too quickly to seize the troubled bank, and then allowed JPMorgan Chase to snap up its assets and branches for a mere $1.8 billion. Ever since, they have unleashed a wave of litigation and asked lawmakers to hold hearings about the controversial rescue.

In his statement, Mr. Rotella suggested the lawsuit was a way for the F.D.I.C. to extract a windfall from directors’ and officers’ insurers, which would want to settle any claims.

The F.D.I.C. complaint says that Mr. Killinger and his top lieutenants took “extreme and historically unprecedented risks” as the savings bank plunged headlong into risky mortgage lending near the height of the housing boom. As experienced bankers, they should have tempered this growth strategy and improved risk management systems to reduce potential losses if the real estate market fell, according to the complaint.

Instead, according to the complaint, they ignored the warnings of the bank’s risk managers and sank deeper into the risky subprime lending and hot real estate markets, like Florida and California. Indeed, the complaint lists more than 26 areas in which they acted recklessly, including a failure to put adequate limits on the concentration of mortgages and employee compensation programs that encouraged high loan volume at the expense of loan quality. The complaint quotes Washington Mutual’s own chief risk officer as telling Mr. Killinger, just weeks before it was seized, that the “risk chromosome” was missing from the bank’s DNA.

In lengthy statements, Mr. Killinger and Mr. Rotella disputed the basic thrust of the F.D.I.C.’s case and reiterated their belief that Washington Mutual was prematurely and unfairly seized. They also insisted that they behaved prudently, acted with constant oversight of banking regulators and took strong action to shore up the bank’s finances when market conditions worsened in late 2007 and early 2008.

“Those initiatives — once applauded by the regulators as diligent and responsible management — have, through the alchemy of Washington, D.C., politics been turned into allegations of gross negligence,” Mr. Killinger said in a statement.

10 Responses

  1. I believe the lawsuit by the FDIC against Wamu executives answers our question – where are our mortgage instruments? Chase Bank personel, who continue to fraudulently misrepresent having been assigned by the FDIC to collect our payments concurrent with the takeover by the feds, will no doubt be thrust further in the hole we are digging for the fraudulent misrepresentation. Our note may very well have been fraudulently conveyed into the same trust that includes the mortgage note covering Killinger’s home. We have never had the duty to explain the origin of our note. Because throughout our lawsuits against Chase, they have and continue to fraudulently misrepresent being in actual possession of our note. The fact pattern of the FDIC lawsuit explains by supporting our contention that contrary to Chase’s explanation, our note and trust deed was not part of Wamu’s portfolio when taken over by the FDIC. It was as the lawsuit explains, fraudulently transferred by Wamu executives prior to federal takeover and to places and parts or persons unknown. We believe we are just one numbering thousands of homeowners that have been duped by Chase Bank into believing it acquired ownership or other interests in our note from the FDIC as receiver for Wamu.

  2. I have no doubt Wamu joined the ranks of all the get em in and get em out lenders who engaged in reckless and predatory lending. I’ve never been convinced Wamu wasn’t unfairly targeted by the FDIC. tho. Who benefitted? Bank of America of course. What an odd name for a bank that perpetrates such monstrosities on America. They should be made to change their name, unless this is indeed the new America.

  3. Does judicial notice extend to another court’s records?

  4. EULE,

    I had a WAMU credit card, paid it religiously, 5k balance at 10% interest, when they were taken over by Chase, Chase upped my interest rate to 30%, I paid on it for a few months, then researched into contract law, money creation, etc. God dam Chase paid something like 10 cents on the dollar for WAMU. So I figured they paid 10 cents on the dollar for my 5k credit card balance and they upped my interest rate. A holes, so I figured Chase in actuality was a debt buyer and I had no contract with them, so I defaulted (on that original creditor WAMU now Chase credit card). It’s been two years and the debt is now sold 3 times. Screw you suckers, I ain’t pay’in for that credit worthless money. I added up all my purchases and compared to the interest paid and all amounts used as credit and we are even, so screw you dick wads. To tell you the truth, I want to sue all these credit collection companies for mail fraud, rico, whatever — sending me pieces of paper in the mail saying I owe some money to them. Who the hell are you to send me a piece of paper saying I owe money and yet you never prove it. Here’s my middle finger to you A holes out there.

    When will the workers for these collection companies realize they are working for a bunch of thieves who pay their workers to extort money from others at a minimal wage so as to enrich the owners of the company and if a public company then enrich the thieves on wall street as well.

    So, if you ever talk to one of these collection people, give them HELL. Make it so bad to talk to you that they want to quit their job. Do you understand this point of view? Nothing against the person – they do not know, but they should not as fellow Americans be working for a bunch of thieves hidden under the guise of pay your debts to another bunch of thieves – the banks and wall street.

  5. If the complaint is for Gross Negligence, Breach of Fiduciary Duty, and FRAUDulent Conveyance and WAMU filed bankruptcy. Shouldn’t this include bankruptcy fraud?

    Shouldn’t we be reporting all those bankrupt lender loan originators?

  6. By the way Warren sold all his Shares from BOA last week or the week before and is putting money into Wells Fargo.

    So if you have a loan with BOA this is a good sign.
    If you have a loan with Wells Fargo it doesnt look good for you.

  7. I wonder why Warren Buffet is taking money out of Goldman Sachs? I think I know the answer

  8. This article says Rotella and Killinger are adamantly defending themselves. That is GOOD NEWS, as some more dirt is sure to come out…when someone big goes down, they try to take as many with them as possible – so much for not ratting out your fellow criminal. Can’t wait for the sordid details…

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