A Washington judge may decide as early as this week whether two former Washington Mutual executives who were accused of taking gambles that led to the biggest bank failure in U.S. history are entitled to $23.1 million in “golden parachute” payments.
Former Chief Operating Officer Stephen Rotella and David Schneider, former president of the home-loans unit, were two of the three WaMu executives that the Federal Deposit Insurance Corp. sued for gross negligence and breach of fiduciary duty after the lender collapsed in 2008 amid the home-mortgage debacle.
The three, including former WaMu CEO Kerry Killinger, settled the FDIC’s suit for $64 million in 2011. According to The Wall Street Journal, Rotella and Schneider are now arguing their golden parachute payments should have been triggered by the seizure and subsequent sale of WaMu’s banking assets to JPMorgan Chase in 2008.
Because of the seizure, they say, WaMu ceased to be covered by federal rules that bar golden parachute payments when banks fail unless they receive an exemption from the FDIC.
WaMu’s liquidating trust counters that golden parachutes were never intended to grant windfall payments to people who contributed to the downfall of a financial institution. Rotella and Schneider claim they are owed $15.7 million and $7.4 million, respectively.
“The row is another in a long line of disputes involving executives who worked at firms that failed or were bailed out during the financial crisis,” the WSJ said, citing challenges to the pay packages of financiers at Lehman Brothers and AIG.
If the WaMu trust is unsuccessful in obtaining a ruling against the payments, Rotella and Schneider would have to turn over all but $4.3 million and $1.6 million, respectively, of their golden parachutes to the FDIC.
But somewhat confusingly, the FDIC has argued that WaMu’s trust is restricted from making the payments, saying in a letter last month that Rotella and Schneider “promoted [WaMu’s] culture of reckless lending, and bore substantial responsibility for the bank’s demise.”
Featured image: Thinkstock