Class-action lawsuit against Washington Mutual sent back for revisions

A federal judge Friday rejected a key portion of a mammoth class-action lawsuit brought by Washington Mutual investors, calling it a "verbose and disordered" argument that failed to identify specific claims of fraud against the failed bank's officers.

The 470-page suit, notable for its citations from 89 "confidential witnesses," alleged that WaMu's officers and directors, as well as investment banks involved in several securities offerings, misrepresented the company's financial results, secretly undermined its risk-management policies, corrupted its appraisal process and abandoned appropriate underwriting standards for home loans.

Judge Marsha Pechman, in a 33-page ruling, told lawyers for the investor plaintiffs that they must revise and resubmit their claims of securities fraud against former WaMu Chief Executive Kerry Killinger and six other officers.

The investors' filings "fail to organize and identify the allegations supporting securities fraud as to each defendant ... and appear to include numerous irrelevant allegations," she wrote. Even after they followed up with a 150-page brief and oral arguments, Pechman added, "the court remains mystified at (plaintiffs) counsel's failure to allege cohesive claims."

Pechman let another claim, relating to misrepresentation in WaMu's securities offerings, proceed. That claim is aimed at the company's investment banks, accounting firm and outside board members.

Bradley Keller, lead attorney for the investors, said the judge's ruling on the fraud claims is "a technical obstacle that's easily overcome." His filings told a broad story of corporate deception, and the judge's message is that "you need to tie that to the specific people," said Keller, of the Seattle firm Byrnes & Keller.

Rob Pfister, an attorney representing the former WaMu officers other than Killinger, said the allegation of securities fraud "is the heart of the case" against the bank's management and board. Pechman's ruling means those claims can't move forward unless the investors' attorneys offer a more coherent and specific account of the alleged wrongdoing, said Pfister, an attorney at Simpson Thacher & Bartlett in Los Angeles.