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by Derek Loosvelt | March 18, 2011


Since that whole financial crisis thing, the federal government and its financial watchdog agencies have been severely pressured by the taxpaying public (many of whom lost jobs, wives, houses, pets, and their pride during said crisis) to find those responsible for the near collapse of the U.S. economy and put them behind bars. So far, the government has been unable to do so, and, as a result, the people aren't too happy.

Today, though, the FDIC has brought a pretty major suit against the CEO and other major executives at the former Washington Mutual, which, you may recall, infamously failed back in 2008, becoming the largest bank failure in American history. Soon afterward, the bank was sold, at an extreme discount, to JPMorgan Chase.

In the FDIC's suit, which aims to recover some $900 million, three WaMu executives -- Kerry Killinger, WaMu's ex-CEO; David C. Schneider, WaMu's ex-president of home lending; and Stephen J. Rotella, WaMu's former chief operation officer -- are accused of focusing on "short-term gains to increase their own compensation, with reckless disregard for WaMu's long-term safety and soundness." In other words, they're crooks, according to the FDIC.

Further, the executives (who were "chiefly responsible for WaMu's higher-risk home lending program" and thus "accountable for the resulting losses") were said to have gone on a "lending spree" without regard to risk management, all while the economy was known to be imploding.

And to that end, the suit includes the following statement written by WaMu's former chief enterprise risk officer to Kerry Killinger at the time of the aforementioned lending spree: "Neither [Enterprise Risk Management] nor other WaMu employees seem to have unifying principles to effectively reflect a risk management perspective in important decisions or day-to-day activities." The risk officer also claimed that the bank was missing a "risk chromosome" in its "DNA."

Perhaps even more interesting (and damning), the suit claims that the wives of Killinger (Linda) and Rotella (Esther) were in on the scamming, helping their alleged crooked husbands hide some of their assets so they'd be off limits to creditors.

Both Killinger and Rotella have called the suit baseless and intend to fight it. No word, as of yet, has been released from their wives.

Finally, it should be pointed out that if this case holds up, and results in some serious fines, it should open up the flood gates for additional similar suits to follow. Which will certainly be pleasing to the people.

(NYT: F.D.I.C. Sues Ex-Chief of Big Bank That Failed)

(WSJ: Highlights from the WaMu Lawsuit)

(Related: WaMu and JPMorgan Married (Shotgun-Style) by the Feds)


Filed Under: Finance

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