WaMu shareholders may get settlement in class-action suit

Apr 7, 2011

A tentative settlement has been reached in a class-action lawsuit against Washington Mutual Inc, the largest bank failure in the nation's history. If a U.S. district court judge approves it, shareholders would get some money for stocks that are basically worthless now.

The exact amount of the settlement has not yet been released, but The Seattle Times Reports that it could be more than $200 million. That would break down to more than 11 cents a share, but attorney fees would be taken out before stockholders are paid. The company had 1.7 billion shares outstanding when federal regulators seized the bank and sold the bulk of it to J.P Morgan Chase & Co.

Among other accusations, the lawsuit alleges WaMu encouraged risky lending, inflated appraisals and lied about the bank’s financial condition. It calls out the following executives and directors by name:

  • Kerry Killinger, former chief executive officer
  • Stephen Rotella, former chief operating officer
  • David Schneider, former head of the bank's home-loan division*

*note: Shneider now works for JP Morgan Chase, the company that bought WaMu after it failed

The lawsuit also targets a bunch of investment banks, including Goldman Sachs, Lehman Brothers, and Morgan Stanley. They all have denied wrongdoing.

The case consolidated more than 20 lawsuits filed against the company since federal regulators seized it in 2008. It was scheduled to go to trial in 2012, but the judge canceled it after hearing about the settlement. Attorneys for the two parties of the lawsuit have not commented on the tentative resolution. 

The pending settlement comes on the heels of another big lawsuit filed by the federal bank regulators. In that suit, the FDIC is seeking up to $900 million in damages. It also names the three executives listed in bullet points above, as well as their wives.