Consolidated Class Action - WAMU

Lead Plaintiff’sConsolidated Securities ComplaintNo. 2:08-MD-1919 MJPBernstein Litowitz Berger & Grossmann LLP1285 Avenue of the AmericasNew York, NY 10019(212) 554-1400

12345678910111213141516171819202122232425262728UNITED STATES DISTRICT COURTWESTERN DISTRICT OF WASHINGTONAT SEATTLEIN RE WASHINGTON MUTUAL, INC.SECURITIES LITIGATIONThis Document Relates to: ALL ACTIONSNo. 2:08-md-1919 MJPLead Case No. C08-387 MJP

CLASS ACTION COMPLAINT

JURY DEMAND

CONSOLIDATED CLASS ACTION COMPLAINT

Lead Plaintiff’sConsolidated Securities ComplaintNo. 2:08-MD-1919 MJPPage iBernstein Litowitz Berger & Grossmann LLP1285 Avenue of the AmericasNew York, NY 10019(212) 554-1400

12345678910111213141516171819202122232425262728TABLE OF CONTENTSI. OVERVIEW OF THE ACTION.........................................................................................2II. THE CLAIMS ASSERTED IN THE COMPLAINT..........................................................7III. JURISDICTION AND VENUE..........................................................................................7IV. THE PARTIES.....................................................................................................................8A. Plaintiffs...................................................................................................................8Lead Plaintiff...........................................................................................................8Additional Named Plaintiff......................................................................................9B. The Exchange Act Defendants.................................................................................9Washington Mutual, Inc...........................................................................................9The Officer Defendants..........................................................................................12The Controller Defendants.....................................................................................14The Audit Committee and Finance Committee Defendants..................................14C. Relevant Non-Parties.............................................................................................16First American Corporation...................................................................................16Lenders Services Inc..............................................................................................18V. CLASS ACTION ALLEGATIONS..................................................................................18VI. FACTUAL BACKGROUND AND SUBSTANTIVE ALLEGATIONS.........................22A. WaMu and Its Core Home Lending Business........................................................22B. WaMu Abandons Customary Lending and Business Practices in Favor of Much Riskier Loan Products and Company Policies............................................241. WaMu’s Risky, Nontraditional Loan Products..........................................282. WaMu Aggressively Pushed Risky Loans on Borrowers forDefendants’ Gain.......................................................................................333. Defendants Discontinued Effective Risk Management Duringthe Class Period..........................................................................................41

Lead Plaintiff’sConsolidated Securities ComplaintNo. 2:08-MD-1919 MJPPage iiBernstein Litowitz Berger & Grossmann LLP1285 Avenue of the AmericasNew York, NY 10019(212) 554-1400

12345678910111213141516171819202122232425262728C. Defendants Secretly Corrupted WaMu’s Appraisal Process.................................511. The Pivotal Role of Appraisals in WaMu’s Core Lending Business.........542. Appraisals Relating to WaMu Loans Were Governed by StrictRules Designed to Maintain Appraisal Integrity and Accuracy................57a. WaMu’s Appraisals Were Required to Be Fair, Accurate,and Unbiased..................................................................................57b. Federal Regulations Required that WaMu’s Directors andSenior Officers “Develop, Implement, And Maintain”Appropriate Appraisal Policies for WaMu....................................58c. Defendants Were Specifically Advised of Governing AppraisalStandards and Were Instructed by WaMu’s Regulators to TakeAppropriate Actions to Meet Those Standards..............................603. Defendants Secretly Caused Appraisals Relating to WaMu Loansto be Improperly Inflated...........................................................................62a. Numerous WaMu-affiliated Persons Witnessed WaMu’sSystematic Manipulation of the Appraisal Process.......................65b. Numerous eAppraiseIT-affiliated Persons Witnessed WaMu’sSystematic Manipulation of the Appraisal Process.......................73c. Documents Obtained by the New York Attorney Generaland the Allegations of the NYAG Complaint Further ConfirmThat Senior WaMu Management Directed WaMu’s WrongfulAppraisal Practices.........................................................................93d. Numerous LSI-affiliated Persons Witnessed WaMu’sSystematic Manipulation of the Appraisal Process.......................97e. Expert Analysis of Relevant Housing Data AlsoEvidences WaMu’s Improper Appraisal Inflation Duringthe Class Period............................................................................103D. WaMu’s Underwriting Standards Were Secretly Weakened atDefendants’ Direction..........................................................................................1071. Underwriting Standards for WaMu’s “Prime” Loans WereDeficient...................................................................................................109a. WaMu’s “Prime” Loans Were of Lesser Quality thanWaMu Disclosed..........................................................................109