Suit against WaMu execs can continue, judge rules

A federal judge in Seattle ruled Tuesday evening that nearly all of a massive lawsuit against former Washington Mutual executives, directors and others can move forward.

The suit, which seeks certification as a class action, alleges that WaMu executives committed securities fraud by misrepresenting the failed thrift's lending standards and practices; not disclosing practices such as pressuring appraisers to inflate home values; and filing false and misleading financial reports with the Securities and Exchange Commission.

The defendants, who also included WaMu's accounting firm and several securities underwriting firms, had asked Judge Marsha Pechman to dismiss the suit.

But in her ruling, Pechman said the plaintiffs had made a plausible case that the executives made multiple false statements about WaMu's practices either knowingly or recklessly.

The top executives named in the suit are former CEO Kerry Killinger; former chief financial officer Thomas Casey; former chief operating officer Stephen Rotella; former chief enterprise risk officer Ronald Cathcart; and former home loans president David Schneider.

In May, Pechman rejected an earlier version of the complaint, calling it a "verbose and disordered" argument that failed to identify specific claims of fraud. In tonight's ruling, though, she said the plaintiffs had "largely succeeded in remedying the deficiencies of their initial complaint."

Pechman did dismiss a handful of minor claims against the executives, as well as some of the claims against WaMu's underwriters regarding certain securities sales.

Should the highly complex case not be settled out of court, it promises to reveal much that is still unknown about how WaMu, once the nation's largest thrift and largest mortgage lender, both contributed to and was consumed by the mortgage bubble.

The trial is currently scheduled for May 2, 2011.

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