MARCH 17, 2011, 2:21 P.M. ET.

FDIC Sues Ex-WaMu Executives

By JEAN EAGLESHAM And DAN FITZPATRICK

The Federal Deposit Insurance Corp. sued three former executives of the failed Washington Mutual Bank, along with two of their wives, in a lawsuit filed on Wednesday.

The FDIC is seeking $900 million in damages for alleged gross negligence and other failures by the former executives in the run up to WaMu's collapse in September 2008, the largest-ever U.S. banking failure.

An agreement by WaMu's outside directors to pay $125 million to settle claims by the FDIC is pending approval by the bankruptcy courts, a person familiar with the matter said.

The former WaMu executives charged by the FDIC are Kerry Killinger, the former chief executive officer, and his wife, Linda; Stephen Rotella, a former president and chief operating officer, and his wife Esther; and David Schneider, the former president of home loans for WaMu, who now works for WaMu's new owner, J.P. Morgan Chase & Co.

Mr. Killinger attacked the lawsuit as "baseless and unworthy of the government," according to a statement from him. "The factual allegations are fiction."

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Document: FDIC Lawsuit
.Mr. Killinger also criticized federal regulators who, he said, had reviewed the bank's financial position and "had offices on the premises '24/7'" in the months leading up to the bank's collapse.

In a statement, Mr. Rotella said "it is almost beyond belief that the FDIC would take action against an effective, hard working bank manager who performed well under extraordinary conditions in an effort to save an important financial institution."

Mr. Rotella statement added that the FDIC's investigation "lacks credibility and is unfair, since it has flatly refused Mr. Rotella's offer to meet, answer their questions, and explain his role as Chief Operating Officer at the company. Furthermore, it is patently unfair for the FDIC to expect an individual to have perfect foresight into a crisis that the FDIC itself did not see coming."

The other defendants couldn't immediately be reached for comment Thursday. A J.P. Morgan Chase spokeswoman declined to comment and said Mr. Schneider also declined to comment.

The WaMu suit is the FDIC's highest-profile action against bank executives for alleged wrongdoing during the financial crisis. As of March 15, the FDIC had authorized the filing of lawsuits seeking to recover $3.57 billion from 158 officers and directors at failed banks.

WaMu is only the sixth of more than 300 banks that failed since 2008 to have so far become the target of an FDIC lawsuit against its former officers and directors.

"While the FDIC does not comment on any specific pending litigation, the FDIC as receiver will initiate lawsuits against former officers, directors and other professionals of failed institutions when the case has merit and is expected to be cost effective," FDIC spokesman Andrew Gray said Thursday.

Write to Dan Fitzpatrick at dan.fitzpatrick@wsj.com

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