The Federal Deposit Insurance Corp. has sued the former CEO of Washington Mutual and two other high-level former WaMu executives alleging they took unprecedented risks with WaMu’s home loans portfolio. The FDIC effort is an attempt to make the execs accountable for the thrift's losses.

"They focused on short-term gains to increase their own compensation, with reckless disregard for WaMu’s longer-term safety and soundness. Their negligence, gross negligence and breaches of fiduciary duty caused WaMu to lose billions of dollars," alleges the lawsuit, filed Wednesday in a Washington state federal court.

The suit names former Chief Executive Officer Kerry Killinger, former Chief Operating Officer Stephen Rotella and former Home Loans President David Schneider. Killinger is represented by Barry Kaplan of the Seattle office of Wilson Sonsini Goodrich & Rosati.

In a sharply worded, 1 1/2 page response to the suit, the firm said the case against Killinger "is baseless and unworthy of the government. The factual allegations are fiction. The legal conclusions are political theater. Trial in a courtroom that honors the rule of law — and not the will of Washington, D.C. — will confirm that Kerry Killinger’s management, diligence and commitment to Washington Mutual responsibly and consistently served the interests of its depositors, customers and shareholders."

Rotella and Schneider are represented by Barry Ostrager of the New York firm, Simpson Thacher & Bartlett.

“It is almost beyond belief that the FDIC would take action against an effective, hardworking bank manager who performed well under extraordinary conditions in an effort to save an important financial institution," read a statement from Ostrager about Rotella.

"By the end of his three-plus years as chief operating officer, the company had substantially reduced mortgage volumes and risk, begun to diversify the business mix, raised capital and improved its efficiency. The agency’s actions today should be deeply troubling to all thoughtful Americans.”

In a letter addressed to "friends, family and colleagues," Rotella also included three charts showing WaMu’s riskier mortgage loan generation and share of the mortgage market declined during the time he was COO.

The FDIC contends that WaMu’s Home Loans Division recklessly made billions of dollars in risky single-family residential  loans, dramatically increasing the risk profile of loans in WaMu’s held-for-investment loan portfolio.

The FDIC alleges that the risky lending continued "in the face of continuing warnings from WaMu’s internal risk managers."

"This relentless push for growth was exemplified by WaMu’s advertising slogan, “The Power of Yes,” which promised that few borrowers would be turned away," the lawsuit states.

The thrift layered multiple risks on inherently risky products such as option adjustable-rate mortgages, home equity lines of credit and subprime mortgages. For example, the thift provided loans with little or no documentation of income and loans to borrowers with high debt-to-income ratios, the lawsuit alleges.

The FDIC alleges that WAMU gambled in a few geographical areas where the housing bubble was most prevalent – mainly in California and Florida — despite the odds against them.

The FDIC put WAMU into receivership on Sept. 28, 2008.

The lawsuit claims the thrift's officers engaged in gross negligence and breached their fiduciary responsibilities.

The lawsuit also alleges that all three took efforts to hide their wealth from creditors. Killinger, for example, transferred one-half of his interest in his Shoreline, Wash., home to his wife. Less than two months before the thrift failed, in August 2008, he and his wife, Linda Killinger, transferred their residence in Palm Desert, Calif., to two irrevocable qualified personal residence trusts, according to the lawsuit.

Rotella and his wife transferred their home into two irrevocable trusts in March or April of 2008 and "on information and belief (Rotella) transferred in excess of $1 million dollars to (his wife) Esther Rotella after WaMu failed in September 2008," according to the suit.

From January 2005 to September 2008, the three defendants collectively received more than $95 million in compensation, according to the lawsuit.

In its response to the suit, Killinger's attorney alleges that the Office of Thrift Supervision consistently reported that WaMu's asset quality and liquidity profile evidenced a strong and well managed bank — well into 2007.

Beginning in late 2007, WaMu's "management took effective, immediate and concrete action by raising $10 billion in additional capital to reinforce the safety and soundness of the bank," the statement said.  "Those initiatives — once applauded by the regulators as diligent and responsible management — have, through the alchemy of Washington, D.C. politics, been turned into allegations of gross negligence." The statement also contends the September 2008 seizure and sale of the bank to JPMorgan Chase (JPM: 37.2987 -0.51%) was "premature and unjustified."

Write to Kerry Curry.

Follow her on Twitter @communicatorKLC.