FDIC Sues Former WaMu Execs & Their Wives Over Risky Loans And Hidden Money

They say that behind every great man there is a woman who will eventually be his co-defendant when he is sued by the FDIC for his part in the largest bank failure in U.S. history.

Such is the case for the wives of former Washington Mutual CEO Kerry Killinger and COO Stephen J. Rotella. The two couples, along with WaMu’s former home loans president have all been named in a lawsuit filed by the FDIC that seeks $900 million in damages.

According to the suit, the execs pushed the bank to “take extreme and historically unprecedented risks with WaMu’s held-for-investment home loans portfolio.”

The FDIC alleges that WaMu execs continued to push its staff to make loans at all costs and that the bank continued to take on more risk even as failure loomed on the horizon.

“They focused on short-term gains to increase their own compensation, with reckless disregard for WaMu’s long-term safety and soundness,” reads the complaint.

And as WaMu began its nosedive, the execs named in the suit are alleged to have stashed away some of their millions to hide it from creditors:

In or about August 2008, Kerry Killinger transferred an undivided one-half interest in his residence in Shoreline, Washington, to his wife, Linda Killinger. Shortly thereafter, Kerry Killinger and Linda Killinger each transferred their respective undivided onehalf interests in this residence to two irrevocable QPRTs named the “KK QPRT II 2008 Trust” (which appointed Kerry Killinger as trustee) and the “LCK QPRT II 2008 Trust” (which appointed Linda Killinger as trustee). Each of these property transfers was made with actual intent to hinder, delay or defraud Kerry Killinger’s present and future creditors.

Former COO Rotella denies the allegations, telling the NY Times, “This action runs counter to the facts about my relatively short time at the company… It is also unfair and an abuse of power.”

In September 2008, WaMu was scooped up by JPMorgan Chase.

F.D.I.C. Sues Chief Executive in Washington Mutual Collapse [NY Times]
Highlights from the WaMu Lawsuit [WSJ]