Judge may cancel Washington Mutual insider-trading ruling

By Randall Chase Associated Press

WILMINGTON, Del. — A Delaware bankruptcy judge on Wednesday granted Washington Mutual Inc.’s request that she consider throwing out portions of a September ruling that gave some creditors permission to pursue claims of insider trading by several hedge funds, who are also WaMu creditors.

WaMu and supporting creditors argued that an agreement on its latest reorganization plan depends on Judge Mary Walrath removing language regarding the insider trading allegations from the September ruling, in which she rejected Washington Mutual’s proposed reorganization plan for a second time.

Walrath said that in granting WaMu’s motion, she was not canceling her earlier ruling or saying she was inclined to do so, but only that she would consider it.

Washington Mutual announced last month that it was submitting a new plan to distribute about $7 billion to creditors after reaching an agreement with major creditors, including those who had made the insider trading allegations against the hedge funds.

As with earlier proposals, the latest plan is based on WMI, JPMorgan Chase and the Federal Deposit Insurance Corp. settling lawsuits they filed against one another after the collapse of Seattle-based Washington Mutual Bank in 2008 and the sale of its assets to JPMorgan Chase &Co. for $1.9 billion. It was the largest bank failure in U.S. history.

But in return for agreeing to the settlement that paved the way for Washington Mutual’s new plan, the hedge funds demanded that portions of the earlier ruling suggesting that they may have engaged in wrongdoing, and that their bankruptcy claims should be disallowed, be removed.

One group of creditors objected to Washington Mutual’s motion. Their lawyer said that in insisting that language in Walrath’s previous order be erased, the hedge funds were trying to “wash away” an unfavorable outcome.