WaMu Creditors, Shareholders Make Arguments on $7 Billion Bankruptcy Plan
Washington Mutual Inc. creditors and shareholders made final arguments for and against the company’s $7 billion reorganization plan, disagreeing over whether hedge funds committed insider trading during the almost three-year bankruptcy of the defunct bank holding company.
Shareholders have asked U.S. Bankruptcy Judge Mary Walrath to reject the reorganization plan, claiming the insider-trading allegations taint the proposal and a related settlement worth billions of dollars.
The actions of the four hedge funds “undermine public confidence in the bankruptcy system,” shareholder attorney Parker C. Folse III told Walrath today at a hearing in Wilmington, Delaware.
WaMu is allied with the hedge funds, JPMorgan Chase & Co. (JPM) and the Federal Deposit Insurance Corp. in support of the plan and the settlement. Those groups negotiated the settlement, which splits $4 billion in cash, and billions of dollars more in tax refunds and resolves lawsuits over who is to blame for Seattle-based WaMu’s 2008 collapse, the biggest bank failure in U.S. history.
Shareholders would get nothing under the reorganization plan. They claim the hedge funds used confidential information they gained during the negotiations to buy and sell WaMu securities.
After listening to arguments from lawyers in the case and several WaMu shareholders for more than nine hours, Walrath ended the hearing without making a ruling.
“Well, thanks to the parties,” Walrath said. “I’m not sure it brings me any closer to a decision.”
Trading Restrictions
The hedge funds claim the information wasn’t confidential and deny that their trades were inappropriate. They point to self-imposed trading restrictions they operated under during negotiations and say some information was publicly available.
Shareholders, represented by a court-appointed committee whose legal bills are paid by WaMu, have also asked for permission to sue the hedge funds.
Last month, Walrath agreed to let various groups make final presentations after initially saying she would prefer only to hear from them in writing.
“I don’t want anybody to repeat what’s in their briefs,” Walrath said today, referring to written submissions. “I am a long way toward issuing a decision.”
WaMu Bankruptcy
WaMu filed for bankruptcy on Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to New York-based JPMorgan Chase for $1.9 billion. WaMu’s Washington Mutual Bank was the biggest bank to fail in U.S. history, with more than 2,200 branches and $188 billion in deposits.
The hedge funds that hold different sets of WaMu bonds and convertible securities, shareholders and other creditors have been fighting over how to divide the cash, tax refunds and new stock to be issued in the only part of WaMu that will survive bankruptcy, a small reinsurance company.
The case is In re Washington Mutual Inc. (WAMUQ), 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net
To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net
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