WaMu, JPMorgan deny trying to stall production of documents to securities holders

WaMu, securities holders haggle over documents

WILMINGTON, Del. — A lawsuit filed by holders of $1 billion in Washington Mutual Inc. securities seeking to protect their investment will lead off a hearing on whether the company’s reorganization plan should be approved, a Delaware bankruptcy judge said Tuesday.

Securities holders led by Black Horse Capital are trying to prevent their investment from being transferred to JPMorgan Chase as part of Washington Mutual’s reorganization plan, which will be subject to a court hearing beginning Nov. 1.

The complaint centers on the purported exchange of $4 billion in securities into WMI preferred stock when the Federal Deposit Insurance Corp. seized the holding company’s flagship bank in 2008 and sold its assets to JPMorgan Chase for $1.9 billion.

The securities holders claim the exchange never took place, and that WMI had no authority to transfer the securities to its Washington Mutual Bank subsidiary, and thereby to JPMorgan.

Attorneys for the securities holders wanted a separate trial on their claim, but Judge Mary Walrath said Tuesday that the dispute would lead off the Nov. 1 confirmation hearing to decide whether she will approve WaMu’s reorganization plan.

In response to complaints by the securities holders, Walrath also reiterated a previous order for WMI and JPMorgan to provide information being sought by the investors in connection with their lawsuit. She urged that the information be provided by the Sept. 1 deadline requested by the investors in order to keep the Nov. 1 confirmation hearing on schedule.

The investors claim Washington Mutual and JPMorgan have failed to identify relevant documents or to provide them the search guidance they need to wade through more than 130,000 documents in an electronic database.

“That’s what they’re proposing that we search,” said Daniel Brown, an attorney for the securities holders.

Brown noted that one file containing some 32,000 documents included information on golfing reservations and whale sightings that had been duplicated in other files and deemed relevant to the securities holders’ request for information.

While not interested in whale sightings, the investors are seeking documents underlying the proposed legal settlement that is the foundation of Washington Mutual’s reorganization plan, and information on the value of the securities in question.

Adam Strochak, an attorney for Washington Mutual, said it’s possible that some irrelevant documents mistakenly were sent to the database, but he objected to the notion that the company was trying to stall document production.

“We’ve tried hard to get them what they want,” Strochak said, adding that the securities holders have refused to cooperate by trying to narrow the scope of the information they are seeking.

Walrath’s decision in the complaint filed by the securities holders could prove critical in determining the future of Washington Mutual’s reorganization plan.

The plan is based on a proposed settlement in which JPMorgan would turn over some $4 billion in disputed deposit accounts to WMI after deducting $172 million as its share of tax refunds received. JPMorgan in return would get 80 percent of expected tax refunds resulting from Washington Mutual’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.