WaMu creditors could challenge payments to Killinger, others

Creditors in Washington Mutual Inc.'s bankruptcy could go after a $16.5 million cash severance payment promised to ousted CEO Kerry Killinger, experts said.

While federal regulators seized WaMu's banking operations last week and sold most of them to JPMorgan Chase, the WaMu holding company that previously owned the bank filed for bankruptcy protection and now will be scrutinized by creditors with more than $5 billion in claims.

In trying to get back some of their money, they can challenge payments made to corporate insiders during the year before bankruptcy, several experts said.

That includes Killinger's severance payment and a $7.5 million signing bonus for his successor, Alan Fishman, who ran the bank for 18 days before it failed.

Fishman's signing bonus would be difficult to reclaim, said J. Scott Bovitz, who practices bankruptcy law in Los Angeles.

"It's not for 18 days of work; it's for starting out," Bovitz said of the signing bonus, which would have to be considered too rich compared with signing bonuses for other executives with similar backgrounds before a court would reclaim it.

Killinger's severance, however, could be recovered for a number of reasons, including whether he used his best business judgment in running the company.

"There's a certainty that a creditors' committee will look into this very carefully, because it's a lot of money going out the door," Bovitz said.

WaMu has not said whether Killinger's severance was paid.

"Most executives get a lump sum, and it's paid immediately, however you want to define that," said David Schmidt at James F. Reda & Associates, an executive-compensation consulting firm in New York.

It is unclear whether Fishman and other top executives are now employed by JPMorgan or WaMu's holding company. Efforts to reach WaMu executive vice president Stewart Landefeld, who went on leave from the Seattle law firm Perkins Coie to do legal work for WaMu, were unsuccessful.

Depending on where they work, Fishman and other executives who leave could see their employment contracts — including severance — honored by JPMorgan, or put behind secured creditors in bankruptcy court, where their chances are slim.

"If executives have millions of dollars due to them, they're not going to get it," said Harlan Platt, a professor of finance at Northeastern University in Boston.

It is also unknown whether Killinger sold the $5.1 million in WaMu stock he owned when he was ousted. That stock, like the shares of other stockholders, would now be virtually worthless.

Schmidt cited the example of Dick Fuld, CEO of Lehman Brothers, who was thought to have sold his shares as the investment bank collapsed toward bankruptcy. It turned out that he held onto several million shares until they were worth mere pennies.

"He may have expected it to turn around, and Killinger may have been in that same boat," Schmidt said. "Ultimately what happened, we don't know."

Indeed, questions abound for the bank's new owners in New York and the old company in bankruptcy.

JPMorgan is deciding what to do with WaMu's pension and deferred-compensation plans. It also must decide which WaMu employees, including top executives, it will hire and who will receive severance.

For its part, the holding company does not even know how much it has in assets. In a securities filing on Tuesday, the company said it is trying to figure out the status of its assets, which include $5 billion in cash that was on deposit at WaMu.

JPMorgan spokesman Tom Kelly had no comment.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com