Federal judge in Seattle lets multibillion dollar Washington Mutual securities lawsuit proceed
By Tim Klass, APWednesday, October 28, 2009
Judge lets huge WaMu securities lawsuit advance
SEATTLE — A judge has refused to dismiss a multibillion dollar securities fraud case against former officers, directors, accountants and underwriters of Washington Mutual Bank, which collapsed last year in the biggest bank failure in U.S. history.
A few accusations and a $400 million securities issue were dropped from the case in the 40-page ruling late Tuesday by U.S. District Judge Marsha J. Pechman, but she refused to dismiss any of the defendants, including Kerry K. Killinger, who was chief executive of WaMu from its explosive growth after he took over in 1990 until shortly before it ran aground on Sept. 25, 2008.
“The plaintiffs are very pleased with the court’s ruling,” said Barry S. Keller, a lawyer for the Ontario Teachers Plan Fund, projected as lead plaintiff if the lawsuit is certified as a class action.
Barry M. Kaplan, Killinger’s lawyer, was traveling and did not return a request for comment through his office. Jonathan C. Dickey, a lawyer for Goldman Sachs & Co., Morgan Stanley & Co. Inc. and 13 other underwriters of WaMu securities, would not comment.
Other ex-WaMu officers named as defendants in the lawsuit, a consolidation of three class-action cases, include four former executive vice presidents — Thomas Casey, chief financial officer; Stephen Rotella, chief operating officer; Ronald Cathcart, chief enterprise risk officer, and David Schneider, president of home loans.
The 267-page lawsuit focuses mainly on practices involving home loans, the bank’s principal business, and on securities issued by WaMu and its subsidiaries from Oct. 19, 2005, to July 23, 2008.
The plaintiffs, described by Keller as “everything from mom and pop investors to sophisticated institutional funds,” accuse WaMu executives and directors of misrepresenting the failed bank’s lending practices and standards, concealing activity such as pressuring appraisers to inflate home values, and filing false and misleading reports with the Securities and Exchange Commission.
“This case is built on facts provided by dozens of courageous former WaMu employees who were willing to tell the truth about the predatory lending practices that were directed by top executives at WaMu,” said Chad Johnson, chief lawyer for the plaintiffs, in a prepared statement. “Those reprehensible practices hurt shareholders and borrowers alike and ultimately led to WaMu’s demise.”
According to court documents, losses to the Ontario teachers pension fund alone from alleged wrongdoing by WaMu, underwriters and accountants are estimated at $24 million.
The complaint cites four securities offerings in which WaMu raised about $4.8 billion:
— About $900 million worth of notes on Aug. 24, 2006, including $500 million in three-year floating rate notes and $400 million in five-year 5.5 percent notes.
— An offering of 20 million depositary shares on Sept. 18, 2006, that raised $495.2 million before expenses.
— An offering of 7.25 percent subordinated notes issued on Oct. 25, 2007, and due on Nov. 1, 2017, that raised $494.4 million before expenses.
— An offering of 3 million shares of 7.75 percent convertible preferred stock on Dec. 17, 2007, for a maximum aggregate value of $3 billion.
Pechman removed the $400 million in 5.5 percent notes from the case because none of the plaintiffs had bought any of those notes. It was unclear whether additional plaintiffs who had purchased some of those notes could be added to the case.
Trial is set for May 2, 2011.
Tags: Corporate Crime, Corporate Governance, Fraud And False Statements, North America, Personnel, Seattle, United States, Washington