On September 4, 2012, named plaintiffs Doral Bank of Puerto Rico, Policeman’s Annuity Benefit Fund of the City of Chicago and Boilermakers National Annuity Trust moved for approval of a $26 million settlement with Washington Mutual in an action for alleged violations of Sections 11, 12, and 15 of the Securities Act. Plaintiffs brought the class action against specific WaMu divisions alleging that RMBS offering documents contained material misstatements about the underwriting quality of the underlying loans. Plaintiffs originally sought more than $550 million in the suit. Motion.
WaMu
JPMorgan Sues FDIC in Third-Party Suit
On July 25, 2011, JPMorgan Bank filed a third-party complaint against the FDIC in the Southern District of Ohio, claiming the FDIC indemnified JPMorgan when it agreed to buy assets from Washington Mutual, which went bankrupt in 2008. JPMorgan alleges that it only accepted certain narrow WaMu liabilities in its agreement with the FDIC, specifically excluding liabilities relating to WaMu’s pre-closing activities. Western and Southern Life Insurance Company has since sued JPMorgan for fraudulent misrepresentation in connection with the sale of $650 million in mortgage-backed securities. JPMorgan’s suit against the FDIC seeks all costs, fees and judgments incurred by it as a result of WaMu’s actions. Complaint.
FDIC Files Two Lawsuits Alleging Appraisal Fraud
On May 29, 2011, the FDIC, as receiver for Washington Mutual Bank (“WaMu”), filed complaints in the U.S. District Court for the Central District of California against two appraisal firms alleging negligence, breach of representations and warranties, and breach of contract. The complaints, filed against CoreLogic Valuation Services (formerly eAppraiseIT, LLC) and LSI Appraisal, LLC, allege that these firms provided WaMu with substantially inflated appraisal values, which induced WaMu to make mortgage loans it would not otherwise have made. The FDIC seeks at least $129 million from CoreLogic and $154 million from LSI. CoreLogic Complaint. LSI Complaint.
FDIC Sues Former Washington Mutual Executives and Their Wives
On March 16, 2011, the FDIC filed a complaint against former Washington Mutual CEO, Kerry K. Killinger and his spouse, former COO Stephen J. Rotella and his spouse, and former home loans president David C. Schneider in the US District Court of the Western District of Washington. The complaint alleges that Killinger, Rotella, and Schneider profited by recklessly increasing the risk profile in WaMu’s held-for-investment loan portfolio. The complaint further alleged that these executives were responsible for WaMu’s higher risk home lending program that eventually caused the demise of the bank. In addition to the claims against Killinger, Rotella and Schneider for gross negligence, ordinary negligence and breach of fiduciary duty, the FDIC also asserted claims against Killinger’s and Rotella’s wives, alleging that Killinger and Rotella fraudulently conveyed valuable assets to their wives in order to hinder, delay, or defraud their creditors. Complaint.