An FDIC lawsuit is still pending against three former WaMu executives alleging gross negligence and breach of fiduciary duties.
The executives who led Washington Mutual to ruin won’t face any federal criminal charges for their actions leading up to the thrift’s failure nearly three years ago.
U.S. Attorney Jenny Durkan’s office issued a statement Friday afternoon that it was closing its investigation into WaMu’s collapse, the largest bank failure in the nation’s history.
“Based upon its investigation, the Department of Justice has concluded that the evidence does not meet the exacting standards for criminal charges in connection with the bank’s failure,” Durkan said in the statement.
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Through a spokeswoman, Durkan declined to comment further on her decision to close the investigation, citing Justice Department policy.
Her announcement continues a pattern that has marked the aftermath of the financial crisis: To date, only one person — Goldman Sachs mortgage trader Fabrice Tourre — has been criminally charged for actions during the subprime mortgage bubble, the collapse of which triggered the deepest recession in decades.
The probe, which began before WaMu was seized by federal banking regulators in September 2008 but was only made public a month afterward, involved “hundreds” of interviews and “millions” of documents, the statement said.
At least seven federal agencies, as well as the state Department of Financial Institutions, participated in the investigation. Investigators also reviewed the results of several other inquiries into WaMu’s failure, including reports by the Senate Permanent Subcommittee on Investigations, the Treasury Department’s Office of Inspector General, and the Federal Deposit Insurance Corp.
Barry Kaplan, a Seattle attorney who represents former WaMu Chief Executive Kerry Killinger, said via email that he had no comment on the decision.
Friday’s announcement cleared away more of the legal uncertainty that has dogged Killinger and other former WaMu leaders since the thrift ran aground.
Last month, a group of pension plans, investment funds and individual investors agreed to settle the class-action lawsuit they had brought against WaMu’s former top executives and directors, as well as the thrift’s audit firm and the underwriters who had marketed its securities.
The executives and directors — or rather, WaMu’s insurers on their behalf — agreed to pay $105 million to settle the suit, which alleged WaMu and the people who ran it violated federal securities laws by pursuing a high-risk mortgage-lending strategy while telling investors its lending standards and risk controls would protect it from borrowers’ defaults.
The audit firm, Deloitte & Touche, agreed to pay $18.5 million. The underwriters collectively agreed to pay $85 million. U.S. District Judge Marsha Pechman gave preliminary approval to the settlement on July 24; a final hearing has been set for Nov. 4.
Mary Fan, a former federal prosecutor who now teaches criminal law at University of Washington, said prosecutors looking into the banks, mortgage lenders, securities firms and other businesses that fed the financial crisis have found it extremely difficult to gather enough evidence to make criminal cases against any of their leaders.
Prosecutors largely have been unable to “ladder up,” or use lower-level people within a company to get evidence against higher-level people. That, Fan said, has made it hard to establish the executives had the necessary “culpable mental state.”
Making a criminal fraud case, for instance, requires proving intent to defraud and knowledge of falsity.
“It’s really hard to pin down proof of individual criminally culpable knowledge or intent,” Fan said. “It’s not just, ‘Gosh, you really should have known.’ [Prosecutors] have to prove that you did know, you did intend to defraud people.”
In addition, she said, criminal cases have to be proven beyond a reasonable doubt, a higher standard than civil suits. That helps explain why the one remaining major case pending against WaMu’s former leaders is a civil suit filed in March by the FDIC.
That suit accuses Killinger, former WaMu Chief Operating Officer Stephen Rotella, and David Schneider, former head of WaMu’s home-loans division, of “gross mismanagement.”
The agency claims that the men recklessly pushed WaMu into making billions in high-risk home loans, despite knowing the nation was in an unprecedented housing bubble and being warned the company was unprepared to handle that level of risk.
Killinger’s wife, Linda, and Rotella’s wife, Esther, also are named in the suit, accused of helping their husbands transfer homes and cash into trusts to keep them out of creditors’ hands.
After settlement talks fell apart last month, the defendants petitioned Judge Pechman to dismiss the suit, saying the law shields them from personal liability for “business decisions made in good faith, on an informed basis, and absent fraud or dishonesty.” A ruling on that motion is expected sometime this fall.
Drew DeSilver: 206-464-3145 or email@example.com