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Zitat drrugby:
(A deleted message)
Fsh, I figured you would like to see what rotola and Killinger said in Motion to Dismiss briefs against FDIC 2:11-cv-00459.
Rotola says FDIC and OTS is to blame not Exec's..
Rotola confirms 29b$ of WAMU of capital liquidity.
This needs to be forwarded to the EC.. Fair and Reasonable.. Appeal.. Read below..
GO WAMU EC..
DrR..
PRELIMINARY STATEMENT
This lawsuit amounts to a pure public relations stunt designed to deflect criticism away from the FDIC, which has been—and continues to be—under fire for its regulatory failures with
respect to WaMu and refuses to take any responsibility for its central role in the financial crisis.
In March 2011, two and a half years after Washington Mutual Bank was seized, the FDIC filed its politically-motivated complaint purporting to stand in the shoes of a bank that no longer exists
and whose assets the FDIC hastily and improvidently sold off without regard to the impact on creditors, shareholders, employees, or the Seattle economy. The same day the FDIC wiped out
more than $7 billion in shareholder equity, the FDIC issued a press release declaring that its fire sale of WaMu’s banking operations to JPMorgan Chase for $1.9 billion ensured that “neither the uninsured depositors nor the insurance fund absorbed any losses.”1 The reckless and widely criticized
seizure and sale of a well-capitalized bank with $29 billion in net liquidity had catastrophic effects on Seattle’s local economy and thrust Washington Mutual into bankruptcy.
Despite the FDIC’s role in causing staggering losses to creditors, shareholders, and employees it has inserted itself at the eleventh hour into the WaMu-related director and officer litigation under the pretext of seeking to recover unspecified losses for unidentified creditors.
Despite exhaustively investigating the former Washington Mutual officers for over two years at enormous taxpayer expense—with complete and unfettered access to Washington Mutual’s books and records (but without ever asking to interview the officers themselves), and with an obvious agenda to find scapegoats—the FDIC alleges no fraud, no intentional1
FDIC, JPMorgan Chase Acquires Banking Operations of Washington Mutual, Press Release, Sept. 25, 2008, www.fdic.gov/news/news/press/2008/pr08085.html
wrongdoing, no bad faith, and no corporate looting. Rather, the FDIC simply contends that Messrs. Rotella and Schneider were “negligent” in executing their duties during their relatively
brief careers at WaMu. With the benefit of hindsight, the FDIC criticizes statements made in a handful of emails, memoranda and presentations and surmises that the officer defendants
negligently pursued a high-risk strategy—one sanctioned by the FDIC itself at all times relevant to this lawsuit—that resulted in significant losses to WaMu.
Leaving aside the obvious impropriety of the FDIC’s shameless blame-shifting exercise, the Court should dismiss the FDIC’s Complaint for the following reasons:
First, the FDIC is looking back on the country’s worst economic crisis since the Great Depression in search of anyone other than itself to blame and improperly attacking Defendants’ good faith business decisions. “Business decision-makers must operate in the real world, with imperfect information, limited resources, and an uncertain future.” In re Citigroup Inc. S’holder
Deriv. Litig., 964 A.2d 106, 126 (Del. Ch. 2009). In these circumstances, based upon the allegations in the Complaint, Washington’s business judgment rule mandates dismissal. Indeed,
from 2004 until 2008, neither the FDIC nor the OTS raised any significant concerns about WaMu. The FDIC knew in the Summer of 2004 (before the 2005 arrivals of Messrs. Rotella and
Schneider at WaMu) that WaMu’s Board of Directors reviewed and later approved a five-year strategic plan pursuant to which WaMu intended to implement a higher risk mortgage loan strategy.
Neither the FDIC nor the OTS questioned this strategy; in fact, both agreed with the OTS’s “fundamentally sound” rating of WaMu until July 2008—just two months before WaMu was seized.2
The high-risk lending strategy that the FDIC now decries is the very lending strategy that the federal government promoted through the “government-sponsored” secondary market for subprime loans that the Government-Sponsored Enterprises (Fannie Mae and Freddie Mac) 2 See Office of Inspectors General, Department of the Treasury and Federal Deposit Insurance Corporation, Evaluation of Federal Regulatory Oversight of Washington Mutual Bank, EVAL 10-002 (April 2010) (“OIG Report”) at 45,
fdicoig.gov/reports10%5C10-002EV.pdf
in large part created. It is also the lending strategy that the OTS, WaMu’s primary regulator, and the FDIC countenanced throughout the relevant time period. In these circumstances, where high-profit, high-risk lending was effectively a government-sponsored lending strategy for a government-sponsored market, the FDIC cannot establish that Defendants acted with negligence—much less gross negligence. During the limited time Messrs. Rotella and Schneider worked at WaMu, the FDIC—like many others—failed to foresee the depth or severity of the looming financial crisis. Indeed, “FDIC examiners explained that no one could
have predicted the precipitous fall in home prices and the complete shut-down of the secondary market.”3
Second, the FDIC’s causation allegations do not pass muster under Twombly and Iqbal’s “plausibility” requirement given that the FDIC has alleged in separate, later-filed federal lawsuits that the real cause of the losses in the Bank’s held-for-investment portfolio was the gross negligence of two appraisal companies, eAppraiseIT and LSI.
Just weeks after filing this action, the FDIC filed two lawsuits in the Central District of California alleging that the Bank’s outside appraisal companies proximately caused the same losses that the FDIC alleges the officer defendants supposedly caused.
See FDIC v. Corelogic Valuation Servs., LLC, No. SACV11-704
DOC (ANx) (C.D. Cal. May 9, 2011); FDIC v. LSI Appraisal, LLC, No. SACV11-706 JST (MLGx) (C.D. Cal. May 9, 2011) (the “Appraisal Vendor Lawsuits”). The FDIC’s assertion that the appraisal companies’ superseding acts caused the losses here is fatal to the FDIC’s claims.
And, the FDIC’s contradictory causation allegations cannot be accepted as true.
Finally, the FDIC has failed to make any particularized allegations under Rule 9(b) of the Federal Rules of Civil Procedure that would transform the Rotellas’ ordinary financial planning into fraudulent conveyances. The truly commonplace estate planning measure of putting a home 3 Hearing on the Role of Regulators in Exercising Their Supervision of Washington Mutual Bank from 2004–2008: Hearing before the Perm. Subcomm. On Investigations of the Committee on Homeland Security and Governmental Affairs of the U.S. Senate, 111th Congress, Statement of Jon T. Rymer, Inspector General, FDIC (April 16, 2010) at 10,
www.fdicoig.gov/testimony/T10-01_04-16-10.shtml
into a qualified trust, for example, hardly rises to the level of a fraudulent conveyance. That there were pending lawsuits against Mr. Rotella at the time of the alleged transfers is of no moment given that—as the FDIC knows—Mr. Rotella was protected at all times both by directors and officers insurance as well as an indemnification agreement with Washington Mutual. And the meritless claims the FDIC is asserting against Mrs. Rotella (who is separately moving to dismiss for lack of personal Jurisdiction) and Mrs. Killinger demonstrate the in
terreroem purpose of this lawsuit.
Accordingly, the Court should dismiss the Complaint in its entirety.
FACTUAL BACKGROUND
A. During the Relevant Time Period, Neither the FDIC Nor the OTS Raised Any Red Flags about WaMu As WaMu’s federal regulators, the FDIC and OTS oversaw the bank.
Unlike Messrs. Rotella and Schneider, who did not join WaMu until January 2005 and August 2005, respectively (see Compl. ¶¶ 15, 16), the FDIC and OTS knew in the Summer of 2004 that the
WaMu Board of Directors reviewed and later approved a five-year plan guiding WaMu to undertake a higher risk business strategy. (See Compl. ¶¶ 22–25.)
Although the FDIC now vigorously takes issue with the five-year plan, at the time the plan was conceived and approved, neither the FDIC nor the OTS questioned this strategy. In fact, both the FDIC and the OTS agreed that WaMu deserved a “fundamentally sound” rating until July 2008—just two months before WaMu was seized. (See OIG Report, supra note 2, at 45 (“FDIC did not challenge the OTS CAMELS composite rating for WaMu in any year except for the composite 3 rating assigned by OTS in July 2008.
FDIC did not challenge those prior ratings… because FDIC
believed the CAMELS composite ratings were appropriate.”).)
The following chart shows the OTS’s “CAMELS” ratings of WaMu since 2003—well before the five-year plan was approved—and illustrates that the five-year plan did not affect the
rating. The composite ratings range on a scale from 1 (best) to 5 (worst), and reflect the agency’s assessment according to the following definitions: 1=Sound in every respect;
2=Fundamentally Sound;
3=Exhibits some degree of supervisory concern in one or more of the component areas (i.e., capital adequacy, asset quality, management, earnings, liquidity, sensitivity to market risk); 4=Generally exhibits unsafe and unsound practices or conditions;
5=Exhibits extremely unsafe and unsound practices or conditions; exhibits a critically deficient performance; often contains inadequate risk management practices relative to the institution’s
size, complexity, and risk profile; and is of the greatest supervisory concern. (See Uniform Financial Institutions Rating System,
www.fdic.gov/regulations/laws/rules/5000-900.html
at 16; 62 Fed. Reg. 752, 753 (Jan. 6, 1997).)
Report Transmittal Date Capital Adequacy Asset Quality Management Earnings Liquid Assets Sensitivity to Risk Composite Rating
8/22/2003 2 2 2 2 2 3 2
9/13/2004 2 2 2 2 2 3 2
8/29/2005 2 2 2 2 2 2 2
8/29/2006 2 2 2 2 2 2 2
9/18/2007 2 2 2 2 1 2 2
2/27/2008 2 3 2 4 3 2 3
6/30/2008 3 4 3 4 3 2 3
9/19/2008 3 4 3 4 4 2 4
In addition, the FDIC assigned its own CAMELS rating to WaMu. (See Wall Street & the Financial Crisis: Anatomy of a Financial Collapse, Staff Report by the Perm. Subcomm. on
Investigations of the Comm. on Homeland Sec. & Governmental Affairs of the U.S. Senate, Apr. 13, 2011, at 37, hsgac.senate.gov/public/_files/...is/FinancialCrisisReport.pdf
But it was not until September 18, 2008 that the FDIC independently downgraded the bank for the first time. (Id. at 229.) As the OIG report explained, “WaMu remained in the highest-rated (lowest-risk) deposit insurance risk category from January
2003 until December 2007 and in the second highest-rated deposit insurance category from March to June 2008. FDIC monitoring did not influence WaMu’s deposit insurance risk category because the risk category was based on WaMu’s consistent CAMELS composite 2—
‘fundamentally sound’—rating and WaMu’s regulatory capital level.” (OIG Report, supra note 2, at 36.)
Thus, the FDIC did not foresee the looming financial meltdown when it was WaMu’s regulator—but has filed a complaint predicated on the fanciful notion that Defendants were negligent because they should have predicted what the FDIC did not.
B. The FDIC Intervenes to the Detriment of Shareholders, Creditors, Employees, and the Seattle Economy During the country’s financial meltdown, WaMu faced repeated runs on deposits and in early September 2008, the FDIC—through Chairman Sheila Bair—gave WaMu until September 30, 2008 to find a buyer for the bank.
(See Kirsten Grind, The Downfall of Washington Mutual,
Puget Sound Bus. Journal, Sept. 27, 2009, www.bizjournals.com/seattle/stories/2009/09/28/story1.html
In the following weeks, WaMu’s management worked tirelessly to find a possible buyer—shopping the bank on the East Coast,
and inviting potential buyers to WaMu’s headquarters in Seattle to pore over the bank’s books.(Id.)
During this time, the FDIC undercut WaMu’s efforts to sell the bank in an open-market transaction. (Id.) The FDIC began to secretly solicit bids—a clear sign to potential buyers that
seizure was imminent and a signal they could obtain the bank at a bargain price rather than a more lucrative private sale price.
(See Kirsten Grind, The Washington Mutual Decision, Puget
Sound Bus. Journal, Dec. 6, 2009,
www.bizjournals.com/seattle/stories/2009/12/07/
story1.html (last visited June 28, 2011) (“Dec. 6, 2009 PSBJ”); Heidi N. Moore, How J.P. Morgan Raised $11.5 Billion in 24 Hours, Wall Street Journal, Sept. 29, 2008, Wall Street
Journal, blogs.wsj.com/deals/2008/09/29/...15-billion-in-24-hours/(last visited June 29, 2011);
Dealbook, WaMu Fails, and JPMorgan Steps In, N.Y. Times, Sept.
26, 2008, dealbook.nytimes.com/2008/09/26/...ent-seizure/?pagemode=print
The FDIC’s actions undermined any ability of WaMu management to preserve shareholder value by independently selling the bank. Despite Ms. Bair’s stated deadline of September 30, the FDIC and OTS entered WaMu’s headquarters on the evening of September 25, 2008, seized the bank, and choreographed the sale of WaMu to JPMorgan Chase & Co. the same evening. (Sept. 27 PSBJ.)
The FDIC’s premature actions wiped out $7 billion in shareholder equity, created the very creditors it now purports to represent, and imposed thousands of job losses and significant economic hardship in the Seattle area. (Dec. 6, 2009 PSBJ.) If the FDIC had not undermined WaMu’s efforts to sell the bank, these damages would have been significantly reduced—if not eliminated.
More fundamentally, the FDIC’s actions took place despite the fact that WaMu’s liquidity and capital thresholds remained well above the levels typically required for seizure.(Id.)
For example, a bank is considered in danger of being seized if its net liquidity dips below 5% of total assets. (Id.) WaMu had $29 billion in net liquidity—about 9.4% of assets and nearly
twice the closure threshold on the day it was seized. (Id.)
Likewise, WaMu’s capital exceeded all regulatory minimums. (Id.) Its leverage ratio stood at 7.66% of total assets while regulators
consider a level of 5% to be well-capitalized. (Id.; 12 C.F.R. § 325.103(b) (2011).)
C. The FDIC Files Its Complaint Two-and-a-Half Years Later
The FDIC’s 215-paragraph Complaint spends a paltry 11 paragraphs addressing specific acts by Mr. Rotella and 15 paragraphs addressing specific acts by Mr. Schneider. Elsewhere, the
FDIC makes broad claims against all three defendants collectively and fails to differentiate what purportedly wrongful acts each committed. (See, e.g., Compl. ¶¶ 1 (“their negligence . . .”); 2, 8, 182, 184, 185, 188–190, 193 (“Killinger, Rotella, and Schneider . . . ”); 2, 3, 5–12, 57, 70, 86,
88, 90, 91, 93, 95, 96, 98, 100, 103, 107, 116, 119, 136, 141, 142, 153, 155, 156, 161, 165, 170, 176, 177, 180, 186, 191, 194–196 (“Defendants . . . ”); 4, 72, 88, 99, 109, 137, 138, 143–145,
148, 151, 152, 157, 157, 166, 169, 171, 174 (“WaMu . . . ”); 7 (“They . . ..”); 26–27, 29, 31–32, 44–45 (“Killinger and Rotella . . .”).)
The allegations specific to Messrs. Rotella and Schneider merely establish that they kept the Board apprised of their activities, continually assessed risks, carried out their duties, and attempted to survive the financial crisis.
With respect to the FDIC’s fraudulent conveyance claim against the Rotellas, the FDIC alleges that in early 2008, Mr. and Mrs. Rotella transferred their interest in their home to trusts
bearing their own names. (Compl. ¶ 204.)
The FDIC’s allegations do not explain how this common financial planning tool amounts to fraud. And, with respect to Mrs. Rotella in particular, the FDIC does not plead any facts that explain how a transfer by Mrs. Rotella (who the FDIC does not claim to be an FDIC creditor) of her unknown—and not described—interest in the residence to the Esther T. Rotella QPRT 2008 Trust can be a fraudulent conveyance.
The FDIC concedes the remaining fraudulent conveyance allegations lack any factual basis as the FDIC makes these allegations of fraud “on information and belief.” (See Compl. ¶ 205.)
The FDIC’s allegation “[o]n information and belief, Stephen Rotella transferred in excess of one million dollars to Esther Rotella after WaMu failed in September 2008” (id.), fails to set forth the “what,” “when,” and “how” of the purported fraud.
D. The FDIC Files the Appraisal Vendor Lawsuits On May 9, 2011, the FDIC filed the Appraisal Vendor Lawsuits against eAppraiseIT and LSI.
These complaints are attached hereto as Exhibits A and B, respectively, and Defendants respectfully request that the Court take judicial notice of the allegations pled by the FDIC pursuant to Rule 201 of the Federal Rules of Evidence.
In the Appraisal Vendor Lawsuits, the FDIC alleges that unbeknownst to WaMu—and the Defendants here—eAppraiseIT and LSI were grossly negligent in conducting appraisals for WaMu, resulting in substantially inflated appraised values. (Ex. A ¶ 3; Ex. B ¶ 3.)
The FDIC also alleges that the appraisal companies breached their contracts with WaMu by failing to follow federal and state law, regulatory guidelines, and the Uniform Standards of Professional
Appraisal Practice (“USPAP”) in performing their appraisal function. (Id.)
According to the Appraisal Vendor Lawsuits, eAppraiseIT and LSI engaged in the following grossly negligent conduct resulting in artificially inflated appraisals:
(1) use of improper comparables;
(2) failure to include adequate comparables;
(3) failure to disclose prior sales history;
(4) failure to perform site visits;
(5) use of appraisers unfamiliar with the area;
(6) failure to identify information obtained from interested parties;
(7) use of improper factors that impact value;
(8) failure to consider factors that impact value;
(9) failure to address long unsold listing periods; and
(10) inadequate or improper licensing of appraisers.
(See Ex. A ¶ 43; Ex. B ¶ 43.)
In turn, the FDIC alleges WaMu relied on those grossly-inflated appraisals when it provided mortgage loans to borrowers and was forced to charge-off portions of those loans when borrowers subsequently defaulted. (Ex. A ¶¶ 31, 33–34; Ex. B ¶¶ 30, 32–33.)
The FDIC’s complaints against eAppraiseIT and LSI demonstrate conflicting theories of fault for WaMu’s alleged damages. The FDIC claims WaMu relied upon appraisals performed by LSI and eAppraiseIT for loans WaMu held for investment rather than selling into the secondary market—the same portfolio the FDIC targets in the instant suit. (Compare Compl. ¶ 2 with Ex. A ¶ 3 and Ex. B ¶ 3.)
The FDIC claims that “but for” the inflated appraisal services
provided by LSI and eAppraiseIT (and corresponding breaches of contract), WaMu would not have made the residential mortgage loans at issue and would not have suffered losses on those
loans. (Ex. A ¶ 3:13, 12:16–17; Ex. B ¶ 3:11, 12:21–22.)
The FDIC further claims that it was clearly foreseeable to eAppraiseIT and LSI that WaMu would incur losses on loans made in
reliance on the inflated appraisals. (Ex. A ¶ 3; Ex. B ¶ 3.)
The FDIC calculates that as a direct and proximate result of eAppraiseIT’s and LSI’s gross negligence, WaMu suffered damages in the amount of at least $129,102,303.77 and $154,519,071.10, respectively. (Ex. A ¶ 45, 18:4-5; Ex. B ¶ 45, 17:24-25).
The FDIC also claims that as a direct and proximate result of eAppraiseIT’s and LSI’s breaches of their respective agreements, WaMu suffered damages in the amount of at least $113,140,271.76 and $146,168,762.34, respectively.
Finally, the FDIC states that it bases its complaints on mere
“samples” of a few hundred of the hundreds of thousands of appraisals eAppraiseIT and LSI performed—specifically, 259 of the 260,000 eAppraiseIT appraisals and 292 of the 386,000 LSI
appraisals provided to WaMu. (Ex. A ¶¶ 26, 31; Ex. B ¶¶ 28, 30.)
Incredibly, the FDIC alleges 97% of the appraisals contained USPAP violations and 75% of the appraisals “contained multiple egregious violations of USPAP and appraisal industry standards.” (See Ex. A ¶ 31; Ex. B ¶ 30.)
Thus, once the FDIC analyzes the remaining 259,741 eAppraiseIT appraisals and the 385,708 LSI appraisals, it will likely seek billions of dollars in damages.
Zitatende Teil 1
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Fortsetzung siehe Teil 2
Zitatende
MfG.L:)
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