Washington Mutual bankruptcy judge will appoint examiner to review settlement, estate assets

WaMu bankruptcy judge to appoint examiner

WILMINGTON, Del. — A Delaware judge granted a request by Washington Mutual shareholders on Tuesday to appoint an independent examiner who will review claims and assets in the company’s bankruptcy case and also a legal settlement underlying its reorganization plan.

Judge Mary Walrath made her decision after Washington Mutual, frustrated by shareholder demands for information, said an examiner may be needed to advance the case.

The judge directed the U.S. trustee in the case to choose an examiner by Monday. She also ordered that the examiner submit a preliminary plan by Aug. 6, and a preliminary report by Sept. 7, when she will consider documents outlining Washington Mutual’s proposed reorganization plan.

“I strongly urge the parties to consensually provide information to the examiner,” the judge said.

The shareholders say they been stymied in their efforts to obtain information about a proposed settlement agreement between Washington Mutual, JPMorgan Chase and the Federal Deposit Insurance Corp.

Those banks filed lawsuits against one another over roughly $4 billion in disputed deposit accounts after the FDIC seized WaMu’s flagship bank in 2008 and sold its assets to JPMorgan for $1.9 billion.

Shareholders say investors need to know the potential value of the company’s assets, and the potential claims that are being released under the proposed settlement, to determine whether the settlement is fair.

“I am not in position to deal with confirmation at this juncture given the inability of parties to fully investigate or consider all of the claims,” said Walrath, who had denied a previous request to appoint an examiner.

On Tuesday, however, she conceded that the case had been bogged down by “inordinate delays and impediments.”

While dropping objections an examiner, attorneys for the bank and several creditor groups argued that the examiner should have a limited scope and be given no more than 75 days to submit a report.

Shareholders disagree.

“The investigation here needs to be more than a whitewash,” said Justin Nelson, an attorney for the shareholders committee.

Walrath wrote that the examiner should not have “carte blanche,” but also that he should not be restricted to reviewing just the proposed settlement.

Under a proposed settlement, JPMorgan would turn over some $4 billion in disputed deposit accounts to Washington Mutual after deducting $172 million as its share of tax refunds received.

JPMorgan would get 80 percent of expected tax refunds resulting from WaMu’s prior operating losses that are valued at about $3 billion, with Washington Mutual getting 20 percent.

WaMu also would get about 65 percent of a second round of operating-loss tax refunds valued at about $2.6 billion, with roughly 35 percent going to the FDIC.

The deal, which would result in the dismissal of three lawsuits pitting WaMu, JPMorgan and the FDIC against one another, also is contingent on the resolution of claims from holders of billions of dollars of bonds issued by Washington Mutual Bank. Without the bondholders’ approval, the agreement could fall apart.

Under the current plan, the bank bondholders would be eligible to receive up 5.5 percent of the bank’s of the second round of tax refunds, with a cap of $150 million.

Shareholders of Washington Mutual Inc. would receive nothing under the plan.