A federal judge has refused to dismiss a multibillion dollar securities fraud case against former officers, directors, accountants and underwriters of Washington Mutual Bank. As you may recall, Washington Mutual collapsed last year in the biggest bank failure in U.S. history. Some of the claims and a $400 million securities issue were dismissed from the case in the judge’s ruling. Significantly, the judge refused to dismiss any of the Defendants, including Kerry K. Killinger, who was chief executive of the bank from its explosive growth after he took over in 1990 until shortly before it collapsed on September 25, 2008.
Class action status will now be sought in the case. Ontario Teachers Plan Fund will be the lead Plaintiff if the lawsuit is certified as a class action. Other former officers of the bank were named as Defendants in the lawsuit, a consolidation of three class-action cases. These officers 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 lawsuit focuses mainly on practices involving home loans, the bank’s principal business, and on securities issued by the bank and its subsidiaries from October 19, 2005, to July 23, 2008. The Plaintiffs, described as “everything from mom and pop investors to sophisticated institutional funds,” accuse the bank 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. Chad Johnson, chief lawyer for the Plaintiffs, in a news release, said:
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. Those reprehensible practices hurt shareholders and borrowers alike and ultimately led to WaMu’s demise.
According to court documents, losses to the Ontario teacher’s pension fund alone from alleged wrongdoing by Washington Mutual, underwriters and accountants are estimated at $24 million. The Complaint cites four securities offerings in which the bank raised about $4.8 billion. In her ruling, the judge removed $400 million in 5.5% notes, which involved one of the four offerings, from the case because none of the Plaintiffs had bought any of those notes. It is possible that additional Plaintiffs who purchased some of those notes could be added to the case. The case has been set for trial for May 2, 2011.
Source: Associated Press
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