Court Opinion

ID: 2523848
Source: CourtListenerOpinion
Date Created: 2013-10-30 10:10:53.844023+00
Date Added: 2024-06-11T09:33:51.348779
License: Public Domain

687 F.Supp.2d 1248 (2009)
SOUTH FERRY LP # 2, individually and on behalf of all others similarly situated, Plaintiff,
v.
Kerry K. KILLINGER, Thomas W. Casey, Deanna W. Oppenheimer, William W. Longbrake, Craig J. Chapman, James G. Vanasek, and Washington Mutual, Inc., Defendants.
Case No. C04-1599-JCC.
United States District Court, W.D. Washington, at Seattle.
October 1, 2009.
*1249 Clifford A. Cantor, Sammamish, WA, Kevin L. Oufnac, Michael A. Swick, Kahn *1250 Gauthier Swick LLC, New Orleans, LA, Lori G. Feldman, Todd Kammerman, Milberg, New York, NY, Tamara J. Driscoll, Law Offices of Tamara J. Driscoll, Seattle, WA, for Plaintiff.
David L. Lansky, Barry M. Kaplan, Douglas W. Greene, Wilson Sonsini Goodrich & Rosati, Palo Alto, CA, Mary Kay Vyskocil, Simpson Thacher & Bartlett, Candice Aloisi, Judith L. Mogul, Morvillo Abramowlitz Grand Iason Anello & Bohrer, PC, Cyrus R. Vance, Jr., Morvillo Abramowitz Grand Iason & Silberberg, PC, New York, NY, Robert J. Pfister, Simpson Thacher & Bartlett LLP, Los Angeles, CA, Steven P. Caplow, Davis Wright Tremaine, Robert M. Sulkin, McNaul, Ebel, Nawrot, Helgren & Vance, Seattle, WA, for Defendants.

ORDER
JOHN C. COUGHENOUR, District Judge.
This matter comes before the Court on Defendants' reopened Motion to Dismiss Consolidated Amended Complaint (Dkt. No. 65), on remand from the Ninth Circuit (see Dkt. No. 155), and after a new round of supplemental briefing. (Individual Defendants' Joint Opening Brief on Remand (Dkt. No. 171); Plaintiffs' Opening Supplemental Opposition to Defendants' Motion to Dismiss (Dkt. No. 173), Plaintiffs' Reply (Dkt. No. 176), and Individual Defendants' Joint Response (Dkt. No. 174).) Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and will GRANT IN PART and DENY IN PART the motion to dismiss.

I. BACKGROUND

A. Factual Background: The Complaint
This case was first filed in 2004, before the housing market crashed, and before Washington Mutual, Inc. ("WaMu"), along with many of its sister institutions, declared bankruptcy. This matter spans a series of historic events, and provides a snapshot of the mortgage lending crisis that has shaken our country's economy. In order to distill the live issues and direct the parties' future efforts, the Court will describe the allegations and history of this matter in some detailtaking all of the well-pleaded allegations in the complaint to be true. South Ferry LP, # 2 v. Killinger, 542 F.3d 776, 782 (9th Cir.2008).
Plaintiffs'[1] Consolidated Amended Complaint ("the Complaint") alleges that WaMu and certain of its senior executive officers violated federal securities laws by issuing a series of materially false and misleading statements between April 15, 2003, and June 28, 2004 (the "Class Period"). The nub of the Complaint is that Defendants repeatedly represented to the investing public that (1) WaMu had successfully integrated the various technology platforms and operational processes from certain recent acquisitions, and that (2) WaMu was well positioned to withstand market changes in interest rates because of its hedging operations and the natural counterbalance of its risk. Plaintiffs assert that statements regarding WaMu's risk-management capabilities were materially false and misleading because WaMu had, in fact, not integrated its recent acquisitions, and, in particular, had failed to integrate these acquisitions' different information *1251 technology systems. The latter failure, they claim, made it impossible for WaMu to be well positioned to withstand changes in the interest rate environment. (Compl. ¶ 39 (Dkt. No. 54-1 at 17).) In essence, the Complaint paints a portrait of a company whose ability to manage risk was seriously flawed, despite its officers' representations to the contrary.
WaMu maintained a mortgage lending business until its bankruptcy, and was the second-largest mortgage loan originator in the United States by April of 2003, after acquiring nearly $25 billion in assets through five separate acquisitions in 2001 and 2002. (Compl. ¶ 30 (Dkt. No. 54 at 10).) The Complaint focuses on two types of risk associated with WaMu's mortgage lending business: MSR-related risk and pipeline risk. When WaMu originated a home loan, WaMu typically retained the mortgage servicing rights (MSRs) on those loans, which allowed WaMu to provide billing and other services to mortgage holders. MSRs have independent value from the underlying loanand they also have independent risk. The longer the loan exists, the more servicing fees the servicer can collect. If a loan recipient pre-pays its loans, the MSR decreases in value. MSR-related risk is greatest when interest rates are falling, because borrowers are more likely to refinance their loans to take advantage of cheaper rates.
Pipeline risk, on the other hand, is the risk that WaMu will commit to fund a loan at a certain interest rate, only to see market rates change by the time the loan is finalized. A borrower typically "locks in" an interest rate on her home mortgage several weeks before she actually closes a mortgage deal. When mortgage rates are falling, borrowers may abandon a lender with a loan in this so-called "pipeline" in order to take advantage of a cheaper loan elsewhere. When mortgage interest rates are rising, however, the borrower will be able to lock in rates that turn out to be below-market at the time of their closing a loss for WaMu.
Both kinds of risk are therefore inherently subject to risk from market fluctuations in interest rates. WaMu managed these risks, in part, by relying on their "natural hedge." When rates are rising, pipeline risk increases, but MSR-related risk decreases; when rates are falling, the opposite occurs. Theoretically, this balance allowed WaMu to have a steadier revenue stream when interest rates fluctuated. (See Compl. ¶ 59 (Dkt. No. 54-1 at 28) (quoting CEO Killinger's description of this concept).) Additionally, WaMu's officials stated that the company hedged against risk through securities and derivative investments. (Id.) Plaintiffs allege that Defendants repeatedly assured investors that these hedging activities would allow WaMu to thrive in a volatile market.
According to Plaintiffs, however, WaMu was actually not prepared for, nor properly hedged against, a change in interest rates. The central theme of Plaintiffs' complaint is that WaMu's failure to integrate its information systems made it impossible for the company to monitor its hedges, including the "natural hedge," properly. (See Compl. ¶ 47 (Dkt. No. 54 at 21).) According to Plaintiffs, WaMu used "nine separate computer systems to originate mortgage loans, including systems used by acquired banks," and its attempt to implement a single integrated system, called Optis, was unsuccessful. (Compl. ¶¶ 39, 50-52 (Dkt. No. 54 at 16, 23-25).) Against this troubled backdrop, Plaintiffs allege that the individual Defendants[2] reassured investors by publicly *1252 downplaying the operating challenges and representing that WaMu was appropriately safeguarded against market volatility. Plaintiffs allege that these statements led investors to believe that WaMu was sufficiently aware of the interplay of its own riskswhich, they allege, was impossible.

B. Procedural Background
The Court first considered Defendants' Motion to Dismiss in an Order dated November 17, 2005, ("MTD Order") and granted in part and denied in part the Motion. (Dkt. No. 65 at 3.)
Under applicable standards announced in Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), the Securities and Exchange Commission ("SEC")'s Rule 10b-5, and the Private Securities Litigation Reform Act ("PSLRA"), Plaintiffs must properly plead five prongs to survive a motion to dismiss: (1) a misrepresentation of material fact, (2) scienter, (3) causation, (4) reliance, and (5) damages. In re Daou Sys., Inc. Sec. Litig., 397 F.3d 704, 710 (9th Cir.2005). After a lengthy analysis, the Court in 2005 found that at least twenty-two statements alleged in the Complaint were actionably false and misleading misrepresentations of material fact, meeting the first prong of the analysis above. (MTD Order 23 (Dkt. No. 65).) As for the second prong, scienter, the Court decided that the allegations regarding Defendants' knowledge were sufficient to create a strong inference of scienter on the part of three out of the six individual named Defendants (Killinger, Oppenheimer, and Casey), but were not sufficient as to the other three (Chapman, Longbrake, and Vanasek). (Id. at 38). The Court then found that the Plaintiffs had adequately pleaded the third, fourth, and fifth prongs of a PSLRA claim.[3]
Defendants moved for reconsideration. (Dkt. No. 75.) In that motion, they sought to assign error to the Court's use of the core operations principle, discussed further infra, which is relevant to the scienter analysis (and to scienter alone). (See id. at 1.) Defendants argued that a recent Ninth Circuit decision, In re Read-Rite Corp. Securities Litigation, 335 F.3d 843, 848 (9th Cir.2003), disapproved of the principle, mandating a different result. The Court distinguished Read-Rite and denied the request for reconsideration, but also requested supplemental briefing on the issue of whether interlocutory appeal was appropriate. (Id. at 2-3.) After considering this briefing, the Court certified the issue of the continued viability of the core operations inference for appeal, because recent cases "provide substantial grounds for a difference of opinion as to the viability of the core operations inference." (Dkt. No. 96 at 4.)
The Ninth Circuit vacated the MTD Order and remanded. After clarifying the law on the core operations inference, the appellate court declined to uphold the complaint or to dismiss the action in its entiretyas urged by the respective parties and instead remanded to this tribunal to "review Defendants' motion to dismiss under the appropriate standard." South Ferry, 542 F.3d at 786. In remanding on the issue of the core operations inference, the Ninth Circuit did not disturb the other *1253 conclusions reached by the Court in the MTD Order. Id.
Accordingly, the scope of the current issue before the Court is quite narrow. The Ninth Circuit's opinion did not disturb the Court's prior determination that Plaintiffs had adequately pleaded the first, third, fourth, or fifth prong of the PSLRA analysis, so the Court re-adopts its holdings in the MTD Order on those points. To wit, Plaintiffs adequately alleged that WaMu made misrepresentations of material fact,[4] and have adequately pleaded causation, reliance, and damages; as before, the Motion to Dismiss is denied as to those elements. The only task before the Court is to reconsider whether Plaintiffs adequately pleaded scienter.

II. APPLICABLE STANDARDS: PLEADING SCIENTER
Under Federal Rule of Civil Procedure 12(b)(6), a party may bring a motion to dismiss for failure to state a claim upon which relief can be granted. While a court must accept all material allegations in the complaint as true and construe them in the light most favorable to the nonmoving party, conclusory allegations of law or unwarranted inferences of fact urged by the nonmoving party are insufficient to defeat a motion to dismiss. Ove v. Gwinn, 264 F.3d 817, 821 (9th Cir.2001).
Although the Federal Rules of Civil Procedure generally require only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests," Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), federal securities laws add stricter pleading standards to the liberal notice pleading requirements. Like other types of fraud, securities fraud requires Plaintiffs to plead "specific facts" with particularity. In re Silicon Graphics Sec. Litig., 183 F.3d 970, 979 (9th Cir. 1999).
To plead scienter under the heightened pleading requirements imposed by the PSLRA, the complaint must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2). In Tellabs, Inc. v. Makor Issues and Rights, Ltd., 551 U.S. 308, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007), the Supreme Court held that a "strong inference" must be "cogent and compelling, thus strong in light of other explanations. . . . When the allegations are accepted as true and taken collectively, would a reasonable person deem the inference of scienter at least as strong as any competing inference?" Id. at 325, 127 S.Ct. 2499. Specifically, the Supreme Court held that a court "must engage in a comparative evaluation; it must consider, not only inferences urged by the plaintiff . . . but also competing inferences rationally drawn from the facts alleged." Id. at 314, 127 S.Ct. 2499.
*1254 The "required state of mind" for securities fraud is likewise settled. Scienter is the intention "to deceive, manipulate, or defraud." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 & n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). In the Ninth Circuit, recklessness can meet the standard if it reflects "some degree of intentional or conscious misconduct," a concept that courts in this Circuit have called "deliberate recklessness." South Ferry, 542 F.3d at 782; see also Silicon Graphics, 183 F.3d at 979. More than this, the heightened pleading standards require more than "cheerful predictions that do not come to pass"; instead, the PSLRA demands "particular allegations which strongly imply Defendants' contemporaneous knowledge that the statement was false when made." Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 989 (9th Cir.2008) (emphasis in original). Thus, in the context of a 12(b)(6) motion to dismiss, the Court must investigate whether Plaintiffs have alleged with sufficient particularity facts that "give rise to a strong inference" that Defendants made the materially false or misleading statements with at least deliberate recklessness as to their truth.
Of course, it is difficult to find facts regarding an adversarial party's state of mind, given that the only party in full knowledge of those facts is naturally disinclined to share them. As a consequence, Plaintiffs may point to either direct or circumstantial evidence to show that Defendants knew that their statements were false or misleading, but even the circumstantial allegations in the complaint must be strong and particular enough to withstand the PSLRA's heightened pleading requirements. Silicon Graphics, 183 F.3d at 974.
One tool in Plaintiffs' arsenal is the "core operations" inference. In the past, plaintiffs have attempted to satisfy the PSLRA's rigorous pleading standard by alleging not what a corporate officer did know, but what she must have known namely, the mechanics of the business operations within the purview of her responsibilities. Under the core operations theory, it is reasonable to conclude that high-ranking corporate officers have knowledge of the critical core operations of their companies. See South Ferry, 542 F.3d at 782. The question presented to the Ninth Circuit in the interlocutory appeal in this case was whether a scienter theory resting on a core operations inference satisfies the PSLRA's heightened pleading requirement. Id. at 783.
In South Ferry, the Ninth Circuit investigated the interaction of three cases considering the permissibility of this inferenceRead-Rite, Silicon Graphics, and Vantiveand the recent Supreme Court decision in Tellabs. Id. The court acknowledged that the three appellate cases, "read without reference to Tellabs, will generally prevent a plaintiff from relying exclusively on the core operations inference to plead scienter under the PSLRA." Id. at 784 (emphasis added). Tellabs, however, cut the other way, suggesting that previous jurisprudence was "too demanding and focused too narrowly in dismissing vague, ambiguous, or general allegations outright." Id. Instead, "Tellabs counsels us to consider the totality of the circumstances, rather than to develop separately rules of thumb for each type of scienter allegation." Id.
The appellate court then announced three circumstances in which the core operations theory may come into play in meeting a plaintiff's pleading burden under the PSLRA. For simplicity's sake, the Court will call these three circumstances the "actual knowledge" analysis, the "absurdity" analysis, and the "holistic" analysis.
*1255 The Actual Knowledge Analysis. First, pleadings that rest on core operations theory may satisfy a plaintiff's pleading obligations when accompanied by particularized allegations that are sufficiently detailed to establish actual knowledge of the disputed information. Id. at 785. These must be "detailed and specific allegations about management's exposure to factual information within the company." Id. Facts that indicate that management actually did know of the core operations bolster an inference of scienter. Id. In re Daou Sys., Inc., 411 F.3d 1006, 1022-23 (9th Cir.2005) and Nursing Home Pension Fund, Local 144 v. Oracle Corp., 380 F.3d 1226, 1231 (9th Cir.2004), fell into this category. Id. In Daou, the top executives had admitted that they were involved in "every detail" of the company and the plaintiffs had alleged that the defendants actually did monitor the data that were the subject of the allegedly false statements. Daou, 411 F.3d at 1022-23. Likewise, in Oracle, the CEO had touted that "[a]ll of our information is in one database. We know exactly how much we have sold in the last hour around the world." Oracle, 380 F.3d at 1231. Both of these allegations were sufficient to establish that the defendants had actual knowledge of the system flaws within the purview of their responsibilities within the company. Id. By contrast, allegations that senior management "closely reviewed the accounting numbers" and had quarterly meetings to discuss inventory was not enough to rise to the requisite level of scienter in Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1000 (9th Cir.2009).
The Absurdity Analysis. The second category in which the core operations inference may be relevant to alleging scienter is those "rare circumstances where the nature of the relevant fact is of such prominence that it would be absurd to suggest that management was without knowledge of the matter." Id. at 786 (internal quotation marks omitted) (citing Applied Signal, 527 F.3d at 988). In Applied Signal, for example, the corporation had categorized a substantial number of government contracts that were subject to "stop work" orders as "backlog"or work that the company had contracted to do, but had not yet performed. Applied Signal, 527 F.3d at 984. Contrary to this categorization, however, "stop work" orders generally terminated the contracts entirely, making them unlikely ever to result in reportable income. Id. at 987. Because the individual defendants were "directly responsible for Applied Signal's day-to-day operations," it was "hard to believe" that they would not have known about orders that allegedly halted tens of millions of dollars of the company's work. Id. at 988.
Contrariwise, in Glazer Capital Mgmt., LP v. Magistri, 549 F.3d 736 (9th Cir. 2008), the court rejected the contention that the CEO of a small company must have known about a discrete set of illegal payments by the company's foreign sales agents. Id. at 745. Instead, the court found it just as likely that the illegal payments had been kept secret, even within the company. Id. at 787. The court distinguished between information that the CEO "should have known" and information that he "must have known," as only the latter category demonstrates "intentional or conscious misconduct." Id. at 747-48. Finally, the court cautioned that "the mere fact that someone at [the company] had knowledge of the illegal transactions is not enough to satisfy the scienter pleading requirements of the PSLRA, given the context and limited nature of the misrepresentations at issue." Id. at 749. Similarly, in Zucco Partners, information that was "largely definitional" and not "especially prominent . . . would not be immediately obvious to corporate management." Zucco Partners, 552 F.3d at 1001. In order to find scienter, the court would have had to *1256 have found that management was aware that "a software development project had reached the `post-implementation' stage or that computer engineers were working on software that did not qualify for `internal use.' There is no indication that [these definitional differences] . . . would be operationally visible to executives not intimately connected with the development process. . . ." Id.
The Holistic Analysis. Finally, under Tellabs, core operations allegations "may be used in any form along with other allegations that, when read together, raise an inference of scienter that is cogent and compelling in light of other explanations." South Ferry, 542 F.3d at 785. (citations omitted). This requires a court to engage in a holistic review of the complaint. "[T]he core operations inference can be one relevant part of a complaint that raises a strong inference of scienter. . . . Vague or ambiguous allegations are now properly considered as a part of a holistic review.. ." Id. at 784. "Allegations that rely on the core operations inference are among the allegations that may be considered in the complete PSLRA analysis" because "the federal courts certainly need not close their eyes to circumstances that are probative of scienter viewed with a practical and common-sense perspective." Id. Thus, the inference can be a plus factor, adding weight to other allegations and circumstances and giving rise to the necessary level of particularity.
In total, the Ninth Circuit made it clear that, while there are three categories of cases where the core operations inference may come into play, only in two of those circumstances is a core operations theory sufficient to establish scienter: when it would be "absurd" to suggest that management did not know about the facts that make their statements allegedly false, and where the plaintiffs adequately pleaded facts that indicated actual knowledge of the disputed systems or operations. See Zucco Partners, 552 F.3d at 1000 (recognizing two exceptions to the general rule that the core operations inference alone is inadequate). Otherwise, the place of the core operations inference is in a Tellabs holistic review. Taken as one of many allegations in a complaint, courts need not close their eyes to management's inevitable exposure to core operations. See id. at 991 (engaging in a two-part process: first considering each separate allegation alone, then investigating whether holistic review could save the complaint).

III. DISCUSSION: SOUTH FERRY'S COMPLAINT
Plaintiffs alleged that they had uncovered both direct and circumstantial evidence that created a strong inference that the individual defendants had acted with at least deliberate recklessness. By way of background, in the previous Order, the Court found that Plaintiffs adequately pleaded that (1) WaMu suffered technology problems affecting its ability to timely process and monitor loans after customers had locked in rates, (2) Optis was a failure and was never completely rolled out, and (3) WaMu's failure to integrate its different technology platforms created significant problems, including insufficient and inaccurate reporting of data critical to hedging operations. (MTD Order 27 (Dkt. No. 73).)[5] Plaintiffs also adequately pleaded that WaMu's technological capabilities were critical to its core operations. (Id. at 28.) Importantly, Plaintiffs adequately pleaded that Defendants' statements regarding WaMu's technology problems, *1257 balanced businesses, and hedging ability were materially false and misleading within the meaning of Rule 10b-5 (Id. at 22-23.) Because falsity was well pleaded, the Court may now investigate statementseven those that are truethat implicate Defendants' access to information within WaMu, and lead to a determination that Defendants acted with scienter.
None of the confidential witness statements implicates an individual Defendant directly.[6] Thus, these conclusions identify the problem that the individual defendants ought to have known aboutnot that they did, in fact, know about it. As the Court indicated previously, the confidential witness statements only suggest scienter if the core operations inference helps them to do so. (Id.) Thus, Plaintiffs' case against each individual Defendant depends on the permissible conclusions that may be drawn from the individual Defendants' statements, the core operations inference, and stock sales.[7]
Throughout this analysis, the Court is mindful that "the inference that the defendant acted with scienter need not be irrefutable, i.e., of the `smoking-gun' genre, or even the most plausible of competing inferences. . . . Recall in this regard that [the] pleading requirements are but one constraint among many the PSLRA installed to screen out frivolous suits, while allowing meritorious actions to move forward." Tellabs, 551 U.S. at 323, 127 S.Ct. 2499 (citations omitted). Vague and ambiguous allegations are properly considered, even under the PSLRA. South Ferry, 542 F.3d at 784. The Complaint simply must paint a cogent, compelling picture that the individual Defendants acted at least recklessly in assuring investors that WaMu could withstand the vagaries of the market. And as the Court describes below, as to Defendants Killinger, Casey, and Oppenheimer, the Complaint succeeds.

A. Defendant Killinger
Killinger's position at WaMu. During the Class Period, Defendant Kerry K. Killinger ("Killinger") was WaMu's Chief Executive Officer and the Chairman of the company's Board of Directors. (Compl. ¶ 8 (Dkt. No. 54 at 5).) He was also a member of WaMu's Executive Committee and President's Council, which, the Plaintiffs allege, was "focused on operational efficiency, operational decision-making, and strategic execution." (Id.) Also, WaMu made public statements that assured the public that senior management remained informed: "Our goal is to ensure that our senior management has timely access to all material financial and non-financial information concerning our business." *1258 (Compl. ¶ 61 (Dkt. No. 54-1 at 33) (describing WaMu's 1Q:03 Form 10-Q).) During the Class Period, Killinger ran conference calls in which he discussed WaMu's technical systems and risk-management capacity in the home mortgage sector. It is primarily those statements that suggest scienter.
Statements. The statements that indicate Killinger's knowledge of WaMu's core operations are reprinted with contextual details in Appendix B. In summary, Killinger repeatedly assured the public that WaMu was adequately managing its risk, had successfully integrated its recent acquisitions, and was technologically capable of managing information flow. As before, Plaintiffs adequately pleaded that many of these statements were false. (MTD Order 21-23 (Dkt. No. 73).) Even so, the statements require the core operations inference to establish scienter because there is no allegation that Killinger was told of the systems problems, for example, or was alerted that WaMu's risk management was flawed. However, given Killinger's prominent position in the company and the tenor of his missives, the core operations inference if available after South Ferryallows the Court to infer that Killinger must have known that his mollifications about WaMu's hedging ability were dishonest. Defendants argue, though, that Plaintiffs cannot avail themselves of the core operations inference because their allegations fall short of the actual knowledge analysis, the absurdity analysis, and holistic review. But the Court does not agree, particularly because the Court is satisfied that Plaintiffs have adequately pleaded Killinger's actual knowledge.
Defendants argue that Plaintiffs have not pleaded with sufficient particularity that Killinger had actual access to information contradicting his statements that concerned pipeline hedging. (Def. Opening Br. 2-3 (Dkt. No. 171 at 7-8).) Plaintiffs counter that "Defendants exhibited first-hand knowledge of, and sometimes direct involvement in, WaMu's risk-management operations. . . . Defendants spoke with personal knowledge when providing false or misleading assurances regarding WaMu's systems challenges." (Pl.'s Opening Supplemental Opp. 11-12 (Dkt. No. 173 at 16-17).) In other words, Plaintiffs' argument is that Killinger's statements themselves suggest that he had actual knowledge of WaMu's systems capacity and hedges: the Court can infer at least deliberate recklessness because Killinger repeatedly told the investing public "I know what I'm talking about." (Pl.'s Repl. 11 n.6 (Dkt. No. 176 at 15).)
The Court finds analogy in Institutional Investors Group v. Avaya, 564 F.3d 242 (3d Cir.2009). There, focused analyst questions about unusual discounting, in conjunction with the CEO's unequivocal statements indicating his knowledge of the company's systems, established a strong inference of scienter. The possibility that the CEO "was ignorant is not necessarily exculpatory. Even if [he] were not aware of the full extent of the unusual discounting, or the entirety of the other circumstances alleged by Shareholders, he might be culpable as long as what he knew made obvious the risk that his confident, unhedged denials . . . would mislead investors." Avaya, 564 F.3d at 270. Similarly, on remand, the Seventh Circuit in Tellabs reminded courts that notice of a risk is often enough: "When the facts known to a person place him on notice of a risk, he cannot ignore the facts and plead ignorance of the risk." Makor Issues & Rights, Ltd. v. Tellabs, Inc., 513 F.3d 702, 704 (7th Cir.2008). And in Applied Signal, the Ninth Circuit held senior management accountable for information about which they claimed to have superior knowledge: "Once defendants chose to tout the company's backlog, they were bound to do so in a *1259 manner that wouldn't mislead investors as to what the backlog consisted of." Applied Signal, 527 F.3d at 987. See also Oracle, 380 F.3d at 1231 (CEO described his company's, and his own, superlative access to sales data).
The Court finds that Killinger represented that he had access to the information that underpinned his sunny announcements about WaMu's risk-management capabilities. This is enough, under South Ferry, for the Court to find that Killinger had actual knowledge of the systems integration and of the hedging capacity of his company.
First, Killinger discussed WaMu's technology and integrations with a high degree of specificity on more than one occasion. For example, Killinger admitted to investors in July of 2004 that "[w]e did not complete integration of these operations during the refi[nancing] boom, because we decided at the time that the software systems we were developing internally would provide a better road to conversion. So, we did not execute on a long held practice of fully integrating acquisitions unto [sic] a common systems platform in a short period of time." (Compl. ¶ 45 (Dkt. No. 54-1 at 19-20).) This statement demonstrates that Killinger knew about WaMu's systems capacities. He also admitted that the integration of the systems was below-par: "[W]hen we did undertake this integration effort, we did not execute as well as we should have. We had some technology and systems challenges which became larger than anticipated . . ." (Id.) Likewise, in September 2003 he demonstrated knowledge of WaMu's systems and its flaws by stating that "several mortgage banking process system challenges . . . came to light as a result of the spike in interest rates in late July and August . . ." (Id. ¶ 74 (Dkt. No. 54-2 at 7).) In October of 2003, he repeated that "we had to put the final integrations of those acquisitions a bit more on the back burner" to respond to the refinancing boom. (Id. ¶ 79 (Dkt. No. 54-2 at 13).) And more importantly, Killinger repeatedly reassured investors in the face of direct questioning about the status of WaMu's technological woesthat these system challenges were fixed, that WaMu had taken "immediate steps" to address them by putting a "SWAT team of folks" on the problems, and that, now, the company was "back on track" from a technological standpoint. (See id. ¶¶ 74, 77, 79, 96 (Dkt. No. 54-2 at 7, 10, 13, 23).) All of these statements evidence that Killinger had actual knowledge of the integration of the technological systems within WaMu.
Second, Killinger represented repeatedly that he was confident about WaMu's risk managementand, most importantly, that he had adequate information to make those predictions. He admitted the crucial nature of the risk-management endeavor, and represented his own knowledge of and confidence about WaMu's structures, when he said that "credit and risk management practices must infuse the entire operating culture of the company, and I believe we've made good progress in this area." (Id. ¶ 86 (Dkt. No. 54-2 at 18).) Killinger asserted that "we carefully manage all of the various portfolios we're in and we watch the national housing market very carefully." (Id. ¶ 59 (Dkt. No. 54-1 at 28).) And again: "We do continue to manage our credit risks function very carefully. I think we continually improve all our metrics and monitoring and put in some terrific talent that is staying right on top of all this." (Id. ¶ 73 (Dkt. No. 54-2 at 7).) And again: "[W]e have developed sophisticated risk management tools and processes which have allowed us to perform very well in a volatile interest rate environment. This has given me a great deal of comfort in our management of risk overall." (Id. ¶ 86 (Dkt. No. 54-2 at 18).) Most importantly, Killinger personally represented *1260 that that the company's MSR-related and pipeline risks were "integrated" in April and May of 2004. (Id. ¶¶ 106, 114 (Dkt. No. 54-2 at 27, Dkt. No. 54-3 at 5).) In May of 2004, he went so far as to say "there is just one source to do all the hedging, and the portfolios are all pulled together." (Id. ¶ 114 (Dkt. No. 54-3 at 5)); compare Oracle, 380 F.3d at 1231 (CEO announced that "all of our information is in one database. We know exactly how much we have sold in the last hour around the world.").
Thus, Killinger maintained that he knew what he was talking about. He displayed an intimate knowledge of WaMu's information delivery, risk-management structure, and hedging capacity, and he represented to investors that he had all of the information necessary to make accurate predictions about WaMu's risk. This is sufficient to satisfy the actual knowledge analysis and allows the Court to infer scienter. If he did not in fact have such knowledge, it would be at least actionably reckless to reassure the public about these matters at all.
Stock sales. Plaintiffs also point to Killinger's stock transactions, which they allege were suspiciously timed. Unusual or suspicious stock sales by corporate insiders may constitute circumstantial evidence of scienter. Silicon Graphics, 183 F.3d at 986. In order to be "unusual" or "suspicious," the transactions must be "dramatically out of line with prior trading practices at times calculated to maximize the personal benefit from undisclosed inside information." Id. The Court investigated Killinger's stock sales in its previous MTD Order, and found that Killinger's stock trades were generally unsuspicious. (MTD Order 33-34 (Dkt. No. 73).) However, the Court also found that Killinger had not brought forth any evidence to negate the inference of scienter; so the evidence did not permit an inference in either direction. (Id.) As a consequence, the stock sales may be considered in Tellabs holistic review.
Holistic Review. The Court need not investigate whether it would be absurd to think that Killinger was unaware of the flaws in his company's risk management. This is because, even if the allegations regarding Killinger's actual knowledge of WaMu's systems were insufficient standing alone, Tellabs holistic review requires the Court to uphold the Complaint. Taking into account the context, the confidential witness statements, Killinger's prominent position within the company, his stock sales, and, most of all, his repeated public representations that WaMu was confident about its risk management, Plaintiffs have adequately pleaded that Killinger knew (or was deliberately reckless in not knowing) that something was terribly wrong with WaMu's hedging strategy. In the face of a large number of recent acquisitions, consistent systems problems, and technological snafus, it was at least actionably reckless for Killinger to reassure investors that he had WaMu's risk management under control.

B. Defendant Casey
Casey's Position at WaMu. During the Class Period, Defendant Thomas W. Casey ("Casey") was WaMu's Chief Financial Officer and Executive Vice President. (Compl. ¶ 10 (Dkt. No. 54-1 at 6).) He was, like Killinger, a member of the Executive Committee and the President's Council, and participated in conference calls and public appearances to discuss WaMu's fiscal health. (Id.)
Statements. Casey's statements that indicate scienter are reprinted in Appendix C. The Court finds it unnecessary to repeat the legal framework described above; for the same reasons, the Court finds that the allegations in the Complaint are sufficient *1261 to determine that Casey was in possession of actual knowledge about WaMu's risk.
Like Killinger, Casey repeatedly represented to the investing public that he was informed. He discussed his actual knowledge of WaMu's hedging and risk management: "We continue to actively monitor and collectively manage our sensitivity to changes in interest rates and still feel confident with that guidance." (Id. ¶ 67 (Dkt. No. 54-2 at 3).) More, in October 2003: "With regard to your comment about changes in interest rates and the impact it will have on the market, we consistently and [sic] have been talking about this for quite some time, that we're preparing for this . . ." (Id. ¶ 68 (Dkt. No. 54-2 at 4).) Like Kerry, he also asserted his knowledge of the flawed systems. "We have identified these [operational problems] and implemented the appropriate measures to address them. . . . We have addressed these problems through improved information flows, better tracking of loan commitments and stronger oversight. Performance has since improved, and we are returning to normal conditions." (Id. ¶ 79 (Dkt. No. 54-2 at 12).) He repeated this same sentiment two months later. (Id. ¶ 87 (Dkt. No. 54-2 at 18).) In the face of his own representations that he had the necessary knowledge, it was at least actionably reckless to say that "the changes we have made over the past year in our interest rate risk management processes and capabilities . . . have helped us to significantly reduce the company's sensitivity to interest rates." (Id. ¶ 107 (Dkt. No. 54-3 at 1).)
Casey's statements demonstrate actual knowledge of WaMu's technology, risk management, and integration. This is enough to trigger the core operations inference, such that the Court may infer that Casey knew that WaMu's risk management capacity was not as healthy as he was representing.
Stock Sales. The Court previously found Casey's stock sales to be unsuspicious. (MTD Order 34 (Dkt. No. 73).)
Holistic Review. Given Casey's prominent position in the company, his stock sales, his repeated public assurances that WaMu was adequately hedged, and his assurances that he had the information necessary to make those statements, there is enough in the Complaint that the inference that Casey knew that all was not well at WaMu, contrary to his statements, is more "cogent and compelling" than competing innocent inferences. South Ferry, 542 F.3d at 785.

C. Defendant Oppenheimer
Oppenheimer's Position at WaMu. Defendant Deanna W. Oppenheimer ("Oppenheimer") was, during the Class Period, President of the Consumer Group, and a member of the Company's executive management team. (Compl. ¶ 11 (Dkt. No. 54-1 at 6).) She was responsible for WaMu's mortgage banking reporting segment. (Id.) She was a member of the President's Council, and also made public representations about the state of WaMu's risk management.
Statements. Oppenheimer's statements that indicate scienter are reprinted in Appendix D. Like Casey and Killinger, Oppenheimer represented that she had access to the disputed knowledge. To wit, she told investors in 2004 that WaMu had "nine different loan origination systems in our mainstream home lending channel," and recognized that WaMu had not been in a position to integrate its acquisitions. (Id. ¶ 89 (Dkt. No. 54-2 at 19).) This statement displays knowledge of the systems failures that Plaintiffs allege was the fount of WaMu's incapacity to manage risk. Moreover, she represented, like Killinger and Casey, that she had the information *1262 necessary to make predictions about WaMu's capacity to handle interest rate fluctuations: "[W]e are managing our expenses very aggressively during this timeframe, particularly in the mortgage business. . . . We are looking at our whole balance sheet in a very sophisticated fashion, with a number of various hedges and instruments that we are using to be able to hedge and be ready for these types of environments." (Id. ¶ 115 (Dkt. No. 54-3 at 6).) Again, Oppenheimer made statements sufficient to reassure investors not only that WaMu was managing its risk she also represented that she had sufficient information to know about that risk. And, under the actual knowledge analysis, this allows the Court to infer that Oppenheimer must have known, or was deliberately reckless in not knowing, that WaMu was inadequately hedged.
Stock Sales. The Court previously determined that Oppenheimer's stock sales "could support an inference [of scienter] drawn from other circumstantial evidence." (MTD Order 35 (Dkt. No. 73).)
Holistic Review. Again, there is enough in the Complaint, holistically, to support a cogent inference that Oppenheimer was at least deliberately reckless in making soothing statements about WaMu's risk. While Oppenheimer made fewer statements than either Killinger or Casey, she spoke specifically about the company's information flow, describing the nine different loan origination systems. In the face of this admitted technological deficiency, she nonetheless represented to investors that WaMu could manage its risk. The Court finds that, given her prominent position in the mortgage lending department, her representation that she had access to the information necessary to make accurate predictions about WaMu's risk, and her stock sales, the Complaint, read holistically, alleges enough to support a strong inference of scienter. Oppenheimer had to have known that the company's mortgage risk management was flawed.

D. Defendants Longbrake, Vanasek, and Chapman
Plaintiffs do not point to any statements by Defendants Longbrake, Vanasek, or Chapman. In the absence of any statements, the Court is unable to find the data that supported a core operations inference for Oppenheimer, Casey, and Killinger namely, that any of these Defendants had access to the information that made their nonexistent statements false. As before, the Motion to Dismiss is therefore GRANTED as to these individual Defendants.

IV. CONCLUSION
For the foregoing reasons, Defendant's Motion to Dismiss Consolidated Amended Complaint (Dkt. No. 65) is DENIED IN PART and GRANTED IN PART. All claims against Defendants Longbrake, Vanasek, and Chapman are DISMISSED. Claims against Defendants Killinger, Casey, and Oppenheimer may proceed.

APPENDIX A: CONFIDENTIAL WITNESS STATEMENTS

---------------------------------------------------------------------------------------------------------------
CW# &     Job title           Time/location      Job                Allegations
                               employed at        responsibilities
                                WaMu
---------------------------------------------------------------------------------------------------------------
  1       Loan                4/01-8/04          loan processing      Before Optis, closed 40-50
  ¶¶ 48,        Consultant          Jacksonville,      and closing          loans/month; after Optis,
          51                  FL                                      closed about 20/month

*1263
                                                                      Despite problems, was instructed
                                                                      to keep accepting loan applications
                                                                      regardless of likelihood
                                                                      of approval
---------------------------------------------------------------------------------------------------------------
  2      Closing             4/03-1/04          loan closing          Optis slowed loan processing;
 ¶48     Coordinator         Cincinnati, OH                           loan rates often locked at or
                                                                      after 90 days; before Optis,
                                                                      closed 4-5 loans/day, but after
                                                                      Optis, the number dropped
                                                                      significantly and some days
                                                                      none at all
---------------------------------------------------------------------------------------------------------------
  3      VP Business         6/00-4/04          worked on             Did not have technological systems
 ¶49     Strategy/         Seattle, WA        technology            to integrate data needed
         Program                                programs for          to make calculations in the capital
         Mgr.                                   WAMU's consumer       market or secondary market
                                                lending               arena; Optis was supposed
                                                operations and        to help, but lacked capacity
                                                emerging market
                                                strategies
                                                for risk
                                                management
                                                requirements
                                                                      Optis only partially deployed by
                                                                      mid-2003, almost one year late,
                                                                      then withdrawn because of
                                                                      capacity issues
---------------------------------------------------------------------------------------------------------------
  5      Loan Officer                                                 WaMu was so far behind in its
 ¶50                                                                   loan processing that it consis-tently
                                                                      failed to send loan packages
                                                                      to customers on a timely
                                                                      basis
---------------------------------------------------------------------------------------------------------------
  6      VP                  2003-6/04          in charge of          WaMu's loans contained errors
 ¶50                         Seattle, WA        underwriting           and problems because of lack of
                                                administration        quality control in loan processing;
                                                                      Optis was a major part of
                                                                      WaMu's problems because
                                                                      could not support the necessary
                                                                      productivity; Optis repeatedly
                                                                      missed deadlines
---------------------------------------------------------------------------------------------------------------
  7      Loan Officer        9/01-3/04                                Had to turn off phone for 3-4
 ¶¶50,                       Jacksonville,                             months at the loan center to
  51                         FL                                       delay accepting new loan
                                                                      applications, due to Optis and
                                                                      inability to process pending loan
                                                                      applications
                                                                      Despite problems, was instructed
                                                                      to keep accepting loan applications
                                                                      regardless of likelihood of
                                                                      approval, creating flood of loan
                                                                      applications
---------------------------------------------------------------------------------------------------------------
  9      IBM                 11/02-11/03        worked on             Although Optis supposed to fix
 ¶52     Consultant          Fullerton,         CA WAMU's             the problem of delays in loan
                                                conversion to         closings, it made things worse
                                                Optis                 because it required WaMu to

*1264
                                                                       transfer information between
                                                                       systems
---------------------------------------------------------------------------------------------------------------
  11     VP and              8/00-3/04          initially hired to     Optis poorly designed and could
 ¶53     Project                               be Optis release          not support too many concurrent
         Manager                                manager for            users
                                                WAMU's
                                                correspondent
                                                channel
                                                worked on              Optis failed to upload systems
                                                strategic              correctly and was not being
                                                projects               maintained by WaMu's operational
                                                                       centers
---------------------------------------------------------------------------------------------------------------
  12     VP Portfolio        12/02-3/04         reported rate          Accurate reporting of data was a
 ¶54     Retention           Seattle, WA   lock data to           problem because of technological
                                                capital markets        issues, including Optis and multiplicity
                                                group                  of platforms
                                                                       Attended weekly teleconference
                                                                       meetings discussing technology,
---------------------------------------------------------------------------------------------------------------                                                                       rate lock and pipeline challenges

APPENDIX B: DEFENDANT KILLINGER'S STATEMENTS

---------------------------------------------------------------------------------------------------------------
  ¶    Details                Statement
---------------------------------------------------------------------------------------------------------------
  ¶ 45          Def. Killinger,       "Let me remind everyone, that we assembled a large mortgage
                     during conference     lending franchise through a series of acquisitions in a relatively
                     call on July 22,2004  brief period. We acquired P & C [sic] Mortgage, Fleet
                                           Mortgage, HomeSide Lending and North American Mortgage.
                                           The refinancing boom hit and we had the opportunity to derive
                                           significant profits from these acquisitions. We did not complete
                                           integration of these operations during the refi boom,
                                           because we decided at the time that the software systems we
                                           were developing internally would provide a better road to
                                           conversion. So, we did not execute on a long held practice of
                                           fully integrating acquisitions unto [sic] a common systems
                                           platform in a short period of time. . . ."
                                           "[A]nd quite frankly, when we did undertake this integration
                                           effort, we did not execute as well as we should have. We had
                                           some technology and system challenges which became larger
                                           than anticipated, in other words, we did not execute our
                                           normal game plan. That then delayed building the kind of
                                           mortgage business we want to have; One like our retail
                                           banking business that is high-volume, low-cost, scalable and
                                           focused. This integration has simply taken too long. . . ."
                                           "Last call, it became apparent to me that the management
                                           teams leading our mortgage banking group was not making
                                           satisfactory progress in addressing these challenges. So, we
                                           made some big changes. We replaced several people and
                                           asked our entire executive team to step up and help assess the
                                           situation. We discovered that the problems in the mortgage
                                           banking unit were substantial."
                                           "Let me conclude with a summary of our outlook for the
                                           mortgage operations. We have a huge amount of work ahead
                                           of us over the next several quarters to get where we want to

*1265
                                           be. There are some quick fixes but there are some things that
                                           will take time."
---------------------------------------------------------------------------------------------------------------
 ¶ 56           Def. Killinger,       WaMu will be in a "stronger position when the current interest
                     conference call on    rate environment changes."
                     April 16, 2003.
---------------------------------------------------------------------------------------------------------------
 ¶ 59           Def. Killinger,       "[W]e carefully manage all of the various portfolios we're in
                     CNBC interview,       and we watch the national housing market very carefully. . . .
                     on April 16, 2003.    [W]e have a very balanced business model one in which
                                           when housing's doing strong [sic], we get high levels of loan
                                           originations and gains on sale of those loans and so forth.
                                           When interest rates go up and we start to get a slowdown in
                                           housing, then we will have a real benefit of the servicing
                                           portfolio that we have of loans that we service for others, and
                                           that income should really kick in. . . ."
                                           "Part of our business does better when interest rates are going
                                           up, part of it does better when interest rates are going down.
                                           And those really do a nice job of offsetting each other. And
                                           that's given us this very, very strong secular growth rate over
                                           the last many years and relatively little volatility. Now, in
                                           addition to the natural business hedge, we do a certain amount
                                           of financial hedging just to be sure that we . . . smooth out
                                           those peaks and troughs a little bit more. But the kind of
                                           financial hedging we do are straight over tackle. We normally
                                           use [] either securities or certain derivatives just to balance
                                           out the interest rate risk."
---------------------------------------------------------------------------------------------------------------
 ¶ 66           Def. Killinger, in    "Building on first quarter's momentum, Washington Mutual's
                     WAMU's July 15,       balanced business model continued to deliver strong results in
                     2003 press release    the second quarter."
                     discussing 2Q:03
                     financial results.
---------------------------------------------------------------------------------------------------------------
 ¶ 73           Def. Killinger,       "We do continue to manage our credit risks function very
                     during a Lehman       carefully. I think we continually improve all of our metrics
                     Brothers conference,  and monitoring and put in some terrific talent that is staying
                     on Sept. 9,           right on top of all this."
                     2003.
---------------------------------------------------------------------------------------------------------------
 ¶ 74           Def. Killinger,       "[S]everal mortgage banking process system challenges
                     during a Lehman       . . . came to light as a result of the spike in interest rates in late
                     Brothers conference,  July and August. And it's created some imprecision in the
                     on Sept. 9,           matching of our loan commitments and pipeline hedging activities. . . .
                     2003.                 Now, we took immediate steps to address any of the
                                           operating challenges and are back on track. But fortunately,
                                           despite all this, our balanced business model has other parts,
                                           which performed very well in this interest rate environment.
                                           Because rates have risen, for example, we experienced a large
                                           recovery in the value of our mortgage servicing rate assets
                                           . . . . And while a substantial portion of that benefit, of course,
                                           is offset with some of the hedging activities that we do, we do
                                           expect a recovery to outpace the loss on the derivatives. . . . So
                                           you're going to be seeing our retained portfolio grow fairly
                                           significantly. . . . And lastly, as we discussed in the first and
                                           second quarters, we took proactive steps to reposition our
                                           balance sheet for a rising interest rate environment and we're
                                           now in a position to recognize gains in the third quarter. So
                                           as we look ahead, we have been preparing for this eventuality
                                           for quite some time. . . . So overall, as I look at the impact of
                                           these changing interest rates on Washington Mutual, I believe

*1266
                                           that our balanced business model is performing just as
                                           anticipated."
---------------------------------------------------------------------------------------------------------------
 ¶ 77           Def. Killinger, in    "We have identified the issues that led to these challenges [net
                     WAMU's Oct. 21,       loss from mortgage loans] and have implemented measures to
                     2003 press release    address them."
                     discussing 3Q:03
                     financial results.
---------------------------------------------------------------------------------------------------------------
 ¶ 79           Def. Killinger,       "I think, in terms of operational measures, as soon as we saw
                     during conference     that there were  was an inconsistency of the data coming in
                     call on Oct. 22,      between the rate locks and what we needed to do for hedging,
                     2003.                 we jumped on that immediately, put in a very large SWAT
                                           team of folks to get their arms around things. They got that
                                           stabilized very quickly, and then we immediately implemented
                                           a variety of measures to be sure that that would not happen
                                           again. We are very confident at this point in time, that the
                                           flows of information are accurate, and that the financial risk
                                           that we encountered early in the third quarter is taken care of
                                           at this point. . . ."
                                           "And I think, again, just stepping back for just a moment, we
                                           went through a period of rapid acquisitions . . . Because we
                                           needed to respond to the refinancing boom, we had to put the
                                           final integrations of those acquisitions a bit more on the back
                                           burner. And now that the refinancings are slowing down, we
                                           are really going to tune up and dial up the efforts to complete
                                           all of the final operational integrations coming out of those
                                           acquisitions, and getting the true efficiencies that come out of
                                           it. . . ."
                                           [In response to questioning regarding integration of HomeSide
                                           lending onto a single platform] I think we continue to be in
                                           . . . the final process of evaluating all of both the origination
                                           and the servicing platforms that we want to ultimately have.
                                           Particularly in light of our organizational approach that we
                                           want to have, of having as seamless as we can going over to
                                           what we're doing in the banking side of the business, as well.
                                           So we're going through those final evaluations. I will say, in
                                           general, you have heard us talk about over time that the Optis
                                           origination system has been one that has been phased in. It
                                           has been very successful in certain parts of getting a standardized
                                           information screen out to our originators and so
                                           forth. . . ."
---------------------------------------------------------------------------------------------------------------
 ¶ 86           Def. Killinger,       "Under the leadership of Bill Longbrake, we have developed
                     during WAMU's         sophisticated risk management tools and processes which have
                     Dec. Investor Day     allowed us to perform very well in a highly volatile interest
                     Conference, on Dec.   rate environment. This has given me a great deal of comfort
                     9, 2003.              in our management of risk overall. . . ."
                                           "[C]redit and risk management practices must infuse the
                                           entire operating culture of the company, and I believe we've
                                           made good progress in this area."
---------------------------------------------------------------------------------------------------------------
  ¶ 96          Def. Killinger,       "Nearly every one of those [technology write-offs] were related
                     during conference     to . . . our mortgage fulfillment operation. Our senior management
                     call on January 21,   team has completed its end to end diagnostic review
                     2004                  of the mortgage business and expects significant improvement
                                           in efficiency as the year progresses. This will be the result of
                                           further elimination of redundant operations, improvements in
                                           technology performance and streamlining of business process."

*1267
---------------------------------------------------------------------------------------------------------------
 ¶ 106          Def. Killinger,       "Another point that sometimes gets overlooked is the excellent
                     during WAMU's         progress we've made in repositioning the balance sheet over
                     1Q:04 conference      the past year, and significantly reducing our exposure to the
                     call, on April 20,    possibility of rising interest rates . . . . I'll just say that from an
                     2004.                 interest rate sensitivity standpoint, we are in a much stronger
                                           position today that I have ever seen since I joined the company
                                           about 20 years ago. . . ."
                                           "[W]e have fully integrated our MSR and mortgage pipeline
                                           hedging activities and upgraded the capabilities of our capital
                                           market and treasury areas under Tom Casey. This has led to
                                           better execution than ever before."
---------------------------------------------------------------------------------------------------------------
 ¶ 114          Def. Killinger,       "The question was, hedging for our mortgage-related products,
                     during a Lehman       both the pipeline and the MSR, which are the important parts,
                     Brothers conference   will those be from a single source when the systems are
                     on May 12,            integrated? I think a fair way to respond to that is that
                     2004.                 for those purposes of hedging, we integrated the essential
                                           information quite some time ago. So that there is just one
                                           source to do all the hedging, and the portfolios are all pulled
                                           together. . . ."
                                           "The various platforms that I was talking about is primarily
                                           how we have to interact with the customer out of point-of-sale
                                           where I may have had a salesforce [sic] that came from one
                                           acquisition from another, had different products in areas where
                                           it was a bit disjointed. There were two loan servicing systems
                                           that we had for part of our customers on one and part of the
                                           other. But in terms of the financial information coming off
                                           those to do our mortgage servicing valuation and hedging, we
                                           have always had those pulled together."
                                           "Now, we did run into a situation last year in the third quarter
                                           when the loan origination systems were not connected as well
                                           as what we thought they were, and there we ended up with
                                           some hedging issues out of our pipeline. And once we saw
                                           that, we got all over it, and I have not had any issues come out
                                           of that since then."
---------------------------------------------------------------------------------------------------------------

APPENDIX C: DEFENDANT CASEY'S STATEMENTS

---------------------------------------------------------------------------------------------------------------
  ¶ 56          Def. Casey, during    WAMU was taking necessary and proper steps so as to
                     WAMU's 1Q:03          account for "eventual changes in [the] interest rate
                     conference call, on   environment."
                     April 16, 2003.
                                           "At this time, we are focused on balancing the demands of
                                           today while positioning the company for the eventual
                                           change in interest rate environment. And our balanced
                                           business model will provide the leverage to continue to
                                           grow market share in a changing environment."
                                           "As part of the company's ongoing interest rate risk management
                                           program and positioning of the balance sheet for
                                           future rising rates, we repositioned certain acts and liability
                                           hedging during the quarter. . . . We believe this was a
                                           prudent step that will help us position for the future rise in
                                           interest rates."
---------------------------------------------------------------------------------------------------------------
  ¶¶ 57-58 Def. Casey, during    "We feel very good about our hedging activities for
                     the Q & A session      mortgage servicing rights."

*1268
                     of WAMU's 1Q:03
                     conference call, on
                     April 16, 2003.
                                           "Again, we're very confident that our risk management is
                                           working here, and when you see the offset here, I think
                                           we're feeling very good about where we are."
---------------------------------------------------------------------------------------------------------------
  ¶ 67          Def. Casey, during    "Our tremendous second quarter results demonstrate the
                     WAMU's 2Q:03          continued successful execution of our business strategy. . . .
                     conference call, on   All parts of our business are delivering according to plan.
                     July 16, 2003.        And in spite of an operating environment that presents a
                                           diverse mix of challenges and opportunities, our balanced
                                           business model allowed us to achieve record earnings. . . .
                                           Looking ahead, keep in mind that the servicing portfolio can
                                           be expected to contribute significant earnings when the
                                           interest rates eventually do rise. . . . We remain focused on
                                           balancing the demands of today while positioning the company
                                           for the eventual change in interest rates. . . . Home
                                           Loans is prepared for rapid changes in the interest rate
                                           environment. We are confident that our balanced business
                                           model will provide the flexibility to grow market share in
                                           [a] changing environment. . . . We continue to actively monitor
                                           and collectively manage our sensitivity to changes in
                                           interest rates and still feel confident with that guidance."
---------------------------------------------------------------------------------------------------------------
¶ 68            Def. Casey, during    "With regard to your comment about changes in interest
                     the Q & A session     rates and the impact it will have on the market, we consistently
                     of WAMU's 1Q:03       and have been talking about this for quite some time,
                     conference call, on   that we're preparing for this. This is not new news . . . .
                     July 16, 2003.        We have been stressing our environment to anticipate this
                                           kind of shortfall, so that the team has the plans in place and
                                           triggers in place to anticipate slowdowns in volumes . . . . We
                                           feel very good about that, but the forecast for the slowdown
                                           of the market it not new news. We've been anticipating
                                           that for quite some time."
---------------------------------------------------------------------------------------------------------------
¶ 78            Def. Casey, during    "Now let me provide some color on the market-driven
                     WAMU's 3Q:03          issues that contributed to the loss from mortgage loans.
                     conference call, on   These fell into two main areasfirst, the extreme volatility
                     Oct. 22, 2003.        in interest rates down inefficiencies into the market for a
                                           period of time. As we've seen with many other lenders,
                                           this situation impacted our ability to effectively hedge the
                                           pipeline. As you'd expect, a component of our hedging
                                           strategy assumes that a certain percentage of loans in our
                                           pipeline will not be funded. However, during the rate
                                           spike, we experienced a tremendous decrease in the percentage
                                           of loan fallout, as consumers rushed to close their
                                           loans at the lower rates they had locked in. Accordingly,
                                           there were times in the quarter when we incurred losses, as
                                           we repositioned the hedge in response to significant interest
                                           rate movements."
---------------------------------------------------------------------------------------------------------------
    6                Def. Casey, during    "Now, you'll recall that in early September, we also said that
  ¶ 79          WAMU's 3Q:03          operational problems in our home loan business would contribute
                     conference call, on   to third-quarter results. As Kerry mentioned earlier, we
                     Oct. 22, 2003.        have identified these issues and implemented the appropriate
                                           measures to address them. They were timeliness of information
                                           flows, due to the tremendous volume in our loan fulfillment
                                           area. This resulted in certain loan commitments not
                                           being reflected in our hedging profile on a timely basis. . . ."

*1269
                                           "The second item that affected us was that during the apex of
                                           the third-quarter volatility, many of the loans in the pipeline
                                           were not funded within their specified rate lock period. . . . We
                                           have addressed these problems through improved information
                                           flows, better tracking of loan commitments and stronger over-sight.
                                           Performance has since improved, and we are returning
                                           to normal conditions."
---------------------------------------------------------------------------------------------------------------
   7                 Def. Casey, during    "Kerry [Killinger] mentioned we also experienced operational
  ¶ 87          WAMU's Dec.           challenges in our own mortgage business in the third quarter.
                     Investor Day          As we stated on several occasions, we have identified the issues
                     Conference, on Dec.   that lead [sic] to these problems and have implemented the
                     9, 2003.              appropriate measures to address them."
---------------------------------------------------------------------------------------------------------------
   8                 Def. Casey, during    "Overall we remain very comfortable with our valuation model
  ¶ 97          WAMU's 4Q:03          for mortgage servicing rights, and our related derivative
                     conference call, on   hedging continues to perform as expected."
                     Jan. 21, 2004.
                                           "Now, the refinance activity has slowed. We have accelerated
                                           our integration activities as well as our efforts to drive down
                                           our mortgage cost structure overall. As we progressively gain
                                           efficiencies from the integrations and other cost reduction
                                           efforts in the mortgage area, we should see our margin on gain
                                           from mortgage sales improve as the year progresses."
---------------------------------------------------------------------------------------------------------------
   9                 Def. Casey, during    "Our risk management function performed extremely well
 ¶ 107          WAMU's 1Q:04          again this quarter, and we remain very confident in our ability
                     conference call, on   to manage the MSR asset effectively in any interest rate
                     April 20, 2004.       environment. The steps we've taken to fully integrate our
                                           MSR and mortgage pipeline hedging activities have
                                           provided us with more effective and less-expensive hedging
                                           execution. . . ."
                                           "The changes we have made over the past year in our interest
                                           rate risk management processes and capabilities, and the
                                           actions we've taken over the last couple of quarters to adjust
                                           our balance sheet position and optimize the management of our
                                           MSRs have helped us to significantly reduce the company's
                                           sensitivity to interest rates. . . ."
                                           "Bottom line, we feel the company is in a strong position to
                                           withstand changes in rates."
---------------------------------------------------------------------------------------------------------------

APPENDIX D: DEFENDANT OPPENHEIMER'S STATEMENTS

---------------------------------------------------------------------------------------------------------------
    1                Def. Oppenheimer,     "As highlighted earlier, we have not been in a position to fully
  ¶ 89          during the Ragen      integrate the system to the mortgage companies that we
                     MacKenzie 23d         acquired in 2000 and 2001. The end of the refinance wave now
                     Annual Investment     affords us that opportunity, and this slide shows you that our
                     Conference, on May    point-of-sale origination system, Optus.1 [sic], is now rolled
                     18, 2004.             out to the vast majority of our systems. . . ."
                                           "We currently have nine different loan origination systems in
---------------------------------------------------------------------------------------------------------------                                           our mainstream home lending channel."
    2                Def. Oppenheimer,     "[E]ssentially what we are doing is we are measuringwe are
  ¶ 115         during the Lehman     managing our expenses very aggressively during this time-frame,
                     Brothers Financial    particularly in the mortgage business, where we see
                     Services conference,  seeing [sic] those volumes in the mortgage business come
                     May 12, 2004.         down significantly. We are looking at our whole balance sheet
                                           management in a very sophisticated fashion, with a number of

*1270
                                           various hedges and instruments that we are using to be able to
                                           hedge and be ready for any of those types of environments.
                                           And we think we're as well positioned as we have ever been
                                           . . ."
---------------------------------------------------------------------------------------------------------------

NOTES
[1]  The lead plaintiffs seek to represent a class of investors who purchased and sold WaMu securities during the Class Period. They also sought to represent a class of investors who sold WaMu put options during the Class Period, but the Court found that the lead plaintiffs failed to allege loss causation as to their put options class and dismissed those claims. (MTD Order 40 (Dkt. No. 73).) This holding is not upset by the Ninth Circuit's vacatur.
[2]  On October 14, 2008, WaMu filed for bankruptcy. (Dkt. No. 135.) All proceedings were therefore automatically stayed against WaMu. (Id.) The individual Defendants filed a report on January 5, 2009, declaring that the litigation could proceed with respect to them. (Dkt. No. 142.) Because the applicable laws allow for individual liability without reference to their corporate employer, this Order does not violate the stay. See 15 U.S.C. § 78j(b) "It shall be unlawful for any person, directly or indirectly . . . [t]o use or employ . . . any manipulative or deceptive device or contrivance.. ." (emphasis added); see also Fin. Acquisition Partners, LP v. Blackwell, 440 F.3d 278, 282 (5th Cir.2006) (discussing proceedings against individual defendants, where company was debtor in bankruptcy and subject to automatic stay).
[3]  The Court also discussed standing and Section 20(a), but those parts of the Order are not currently under review.
[4]  Defendants spend a considerable amount of time discussing falsity, repeating that "plaintiffs have not adequately pleaded that defendants made a false statement about the company's core operations." (Def. Opening Br. 2:10-11 (Dkt. No. 171).) This argument bootstraps falsity into scienter in a way that is not endorsed by the Ninth Circuit. In fact, the bootstrap actually goes the other wayfalsity alone can indicate scienter in a few extreme circumstances. Digimarc, 552 F.3d at 1000-01. As the Court previously found, "there is a substantial likelihood that a reasonable investor would have acted differently if WaMu had fully and fairly disclosed its progress or lack thereof in developing and/or integrating its technology platforms. . . . [A]ll the statements challenged by Plaintiffs meet the PSLRA test [for falsity]." (MTD Order 21-23 (Dkt. No. 73).) The individual Defendants' statements about WaMu's hedges and its technological integration were materially false and misleading, and pleaded with sufficient particularity; the Court will not revisit those conclusions.
[5]  The confidential witness statements on which the Court based this conclusion are reprinted in Appendix A.
[6]  Compare the confidential witness statements in Appendix A, which describe serious flaws with the systems in the company but do not discuss any individual Defendant's behavior, with the "lone fact . . . indicative of scienter" in Zucco Partners. There, a confidential witness "specifically report[ed] that he/she was directly ordered by [Defendant] in 2004 not to write down obsolete inventory because, according to [Defendant] . . . writing down obsolete inventory would result in the Company's missing market expectations." Zucco Partners, 552 F.3d at 999. Here, no confidential witness statement implicates Defendants' direct knowledge of the system problems at WaMu, much less malfeasance in covering up those problems.
[7]  Plaintiffs had alluded to several Generally Accepted Accounting Principles ("GAAP") violations, claiming that these "violations" indicated scienter. The Court found, however, that Plaintiffs had not adequately pleaded the alleged GAAP violations with the requisite level of particularity. (MTD Order 37 (Dkt. No. 73).) The Ninth Circuit's opinion does not disturb this conclusion. Because there is no proper allegation that GAAP was ever violated, the Court need not now take the alleged violations into account when determining scienter.