WaMu Bankruptcy: It Ain’t Over Till It’s Over

Some bankruptcy and business watchers thought the three-year saga that is the Washington Mutual bankruptcy, one of the two largest Chapter 11 bankruptcy filings, was closing in on eyeshot of the finish line. Then, a judge in the U.S. Bankruptcy Court’s Third District (Delaware) dealt it another setback by siding with lower-level creditors.

Three years since filing for Chapter 11 bankruptcy protection, WaMu’s creditors and shareholders presented final arguments in bankruptcy court asking for the judge to reject a $7 billion reorganization plan last month. Opponents argued a settlement deal WaMu made with a group of hedge funds undermines the fairness of the bankruptcy process and alleged incidents of insider trading. U.S. Bankruptcy Judge Mary Walrath evidently found the argument compelling as she rejected the reorganization plan this week in court and ordered the sides to enter mediation. In the process, she reportedly intimated it was likely some involved in WaMu proceedings, namely a quartet of hedge funds, indeed engaged in insider trading practices to shape the bankruptcy process, as some lower-level creditors alleged.

The proposed settlement, like many proposed bankruptcy plans in recent years, would have left unsecured creditors and shareholders with little or nothing, more likely the latter. Even Walrath herself has described the case as convoluted and intimated that litigation was likely to rage on in one form or another for some time.

Brian Shappell, NACM staff writer