The long, tortuous afterlife of Washington Mutual seemed close to its final chapter Monday night, as the bankrupt firm announced a settlement with all its feuding groups of creditors and shareholders, and its erstwhile leaders reportedly settled a civil lawsuit brought against them by federal regulators.

Former CEO Kerry Killinger, former chief operating officer Stephen Rotella and former home-loans chief David Schneider had been accused of "gross mismanagement" of WaMu's mortgage business that ultimately led to the failure of the lender in September 2008.

The Federal Deposit Insurance Corp. (FDIC) will settle with the five defendants, including two of the former executives' wives, for less than $75 million, The Wall Street Journal reported late Monday, citing unnamed sources. The agency had sought more than $900 million from the executives in private negotiations preceding the lawsuit's filing in March, a source familiar with the matter told The Seattle Times at the time.

Barry Kaplan, the Killingers' attorney, declined to comment on the settlement reports. Barry Ostrager, the Rotellas' attorney, could not be reached for comment.

Most, if not all, of any settlement likely would be paid by WaMu's directors' and officers' (D&O) insurance. The company has $250 million in coverage from 17 D&O policies, according to court records.

However, some of that money already has been earmarked to cover the settlement in a separate lawsuit brought by a group of WaMu shareholders. That suit, which named several WaMu directors, securities firms and the thrift's audit firm in addition to top executives, was settled in July for $208.5 million, with about $105 million paid from the D&O insurance.

The executives have been fighting the case aggressively, arguing they had made legitimate business decisions in good faith that simply didn't pan out. That "business judgment" defense has a long-established place in law, and similar cases elsewhere suggest the FDIC may have had an uphill battle in overcoming it.

Killinger's wife, Linda, and Rotella's wife, Esther, also were sued for allegedly helping their husbands transfer homes and cash into trusts to keep them out of creditors' hands. The settlement covers them as well, the Journal reported.

WaMu became the biggest bank failure in U.S. history more than three years ago, when federal regulators seized its banking assets after depositors began pulling out billions of dollars and the giant thrift came close to exhausting its other available funding sources. The FDIC immediately sold WaMu's banking operations to JPMorgan Chase for $1.9 billion; thousands of people who worked in WaMu's downtown Seattle headquarters and elsewhere lost their jobs.

The holding company filed for Chapter 11 bankruptcy protection the next day and quickly became enmeshed in a tangle of conflicting claims over assets among creditor groups, Chase, the FDIC and common shareholders.

On Monday night, the company said that, after six previous tries, it had reached a deal that all of those groups would support.

Under the deal, WaMu will emerge from bankruptcy as a far smaller company, with its main assets being an investment company and a mortgage reinsurer.

The old company's preferred shareholders will own about 70 percent of the new company; common shareholders will own the rest.

The new WaMu will receive $75 million from certain creditors to get up and running and will be able to draw on a $125 million credit line funded by four large hedge funds that have bought up large amounts of WaMu debt.

A shareholders committee had thrown a monkey wrench into a previous deal by claiming those hedge funds had improperly used information gained during settlement negotiations.

The plan, assuming it wins approval from the bankruptcy court, would clear the way for more than $7 billion to be distributed to WaMu's creditors.

In a statement, WaMu said it hoped to emerge from bankruptcy by the end of February 2012.

Information from Seattle Times business reporter Sanjay Bhatt was used in this report.

Drew DeSilver: 206-464-3145

or ddesilver@seattletimes.com