Del. judge gives WaMu examiner more time to review claims, assets in bankruptcy

Judge gives WaMu examiner more time

WILMINGTON, Del. — A Delaware judge on Tuesday granted a request from a court-appointed independent examiner for more time to review claims and assets in Washington Mutual Inc.’s bankruptcy.

The examiner’s request for more time prompted WMI to postpone Tuesday’s scheduled hearing on whether to approve the disclosure statement describing the bank holding company’s proposed reorganization plan.

The disclosure statement hearing, a critical step in Chapter 11 reorganization, is now tentatively set for Sept. 24. The deadline for the examiner to submit his final report was moved from Oct. 8 to Nov. 1.

Washington Mutual attorney Brian Rosen suggested to Judge Mary Walrath that she schedule a hearing to confirm the company’s reorganization plan to start Dec. 1, but Walrath did not commit to that date.

Walrath appointed the examiner after WMI shareholders said they had been stonewalled in trying to obtain information about a proposed settlement of lawsuits that is the basis for the company’s reorganization plan.

The lawsuits, which pitted Washington Mutual, JPMorgan Chase and the Federal Deposit Insurance Corp. against one another, were filed after the federal regulators seized Washington Mutual’s flagship bank in 2008 and sold its assets to JPMorgan for $1.9 billion.

“We believe we’re making good progress; we’ve reviewed literally thousand of documents,” said Henry Sewell Jr., an attorney representing examiner Joshua Hochberg.

Hochberg filed a 29-page preliminary report on Tuesday describing his work to date but said more time was needed to obtain additional documents and conduct interviews.

“There’s still a lot more to do,” Sewell told Walrath. “… There are a lot of people who had their hands on these transactions and who we need to talk to obtain relevant facts.”

WMI shareholders and holders of $1 billion in Washington Mutual Inc. securities who are seeking to protect their investment from being transferred to JPMorgan, have raised questions about the proposed legal settlement and 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, which 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.

Securities holders led by Black Horse Capital are challenging the settlement and the purported exchange of $4 billion in securities into WMI preferred stock when the FDIC seized Washington Mutual Bank. 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.

The purported securities exchange is one of several issues being looked at by the examiner, who is trying to determine whether the proposed settlement is fair, and whether there are potential assets in WMI’s bankruptcy estate that could increase the amount recovered by creditors but which have not been adequately evaluated.

Among other things, the examiner is investigating whether JPMorgan improperly colluded with federal regulators in connection with the 2008 bank seizure, and whether it used confidential information to try to drive down Washington Mutual’s market value or interfered with efforts by other parties to purchase the bank.

The examiner also is trying to determine whether the FDIC breached its duties as receiver by selling Washington Mutual Bank for less than it could get.