Judge says part of suit against WaMu 'to survive'

At least part of a massive securities-fraud lawsuit stemming from last year's collapse of Washington Mutual appears set to move forward after a hearing Tuesday in federal court in Seattle.

"Something is going to survive" from the case, U.S. District Judge Marsha Pechman told a crowd of defense attorneys representing former CEO Kerry Killinger, other top executives and directors, audit firm Deloitte & Touche and 16 investment firms that underwrote several WaMu securities offerings.

But which defendants ultimately might stand before a jury won't be known for another three weeks or so, when Pechman said she would rule on lawyers' motions to dismiss their clients from the suit.

The shareholder suit, originally filed in August 2008 and revised this past June, alleges that Killinger and the other officers misled investors by not disclosing improper actions they allegedly took to boost WaMu's mortgage business. The allegations include misrepresenting the company's financial results, undermining its risk-management policies, corrupting the appraisal process and abandoning appropriate underwriting standards.

The plaintiffs claim that directors allowed Killinger and the other officers to make false and misleading statements about WaMu's financial condition and loan policies, and Deloitte would have uncovered the trouble had it been doing its job properly. And because the offering documents for the securities offerings contained false and misleading information, they claim, the underwriters also are liable.

But the defendants argued that the 268-page suit failed to show that specific statements made by Killinger and others were false, or that the executives deliberately said things they knew to be untrue.

Barry Kaplan, Killinger's lead attorney, belittled the suit as a tissue of quotes taken out of context, backed up by little more than "vague, general statements" by dozens of confidential witnesses.

But Jerald Bien-Willner, an attorney for the plaintiffs, responded that "these are not scattered allegations by low-level employees." He said many of the confidential witnesses, unnamed but identified by job titles, were senior-level executives who spoke in considerable detail about what was going on behind the scenes at WaMu.

Pechman already has allowed part of the suit, related to an October 2007 securities offering, to move forward.

Late Monday, Pechman ruled that a similar suit, brought last year by former WaMu employees who participated in the company's retirement-savings plan, could move forward.

In that case, which covers much of the same ground as the securities-fraud suit, Pechman dismissed all claims against Killinger and JPMorgan Chase, which bought WaMu's banking operations last fall, and some of the claims against WaMu officers and directors, letting the rest stand.

Both suits are seeking class-action status.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com