Shareholders of Washington Mutual Inc. (WMI) won court approval of a new investigation of the biggest U.S. bank failure, further delaying the company's effort to reorganize in bankruptcy.
Shareholders of Washington Mutual Inc. (WMI) won court approval of a new investigation of the biggest U.S. bank failure, further delaying the company’s effort to reorganize in bankruptcy.
U.S. Bankruptcy Judge Mary F. Walrath in Wilmington, Del., agreed that an examiner should be appointed to review WMI’s assets, including the value of a potential lawsuit against JPMorgan Chase & Co. and the Federal Deposit Insurance Corp. for their role in the 2008 collapse of Washington Mutual Bank.
Shareholders claim that lawsuit could be worth $30 billion, a figure disputed by the FDIC, WaMu and its creditors.
“An examiner is necessary both to reduce the cost of litigation and to ensure that all parties have a forum,” Walrath said.
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WMI, based in Seattle, dropped its opposition Tuesday to a new investigation, provided that it doesn’t cause a long delay in its proposal to distribute more than $6 billion to creditors.
Walrath said the examiner should file a preliminary work plan by Aug. 6. She also said the examiner would immediately meet with the FDIC and other critics of a potential lawsuit to hear their arguments.
A preliminary report on the examiner’s findings should be presented to the court at its Sept. 7 hearing, Walrath said.
“We are thrilled” by the ruling, shareholder attorney Justin Nelson said in an interview after the hearing. “We look forward to an independent investigation.”
WMI argued that an investigation should be limited and last no longer than 75 days. Shareholders proposed giving an examiner 120 days to file a preliminary report.
“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.
WMI agreed not to sue JPMorgan and the FDIC as part of a settlement that splits almost $10 billion in cash and tax refunds. That agreement expires Aug. 30. Shareholders would get nothing under a proposed liquidation of most of the company’s remaining assets.
The examiner will be named by the U.S. Trustee, an arm of the U.S. Justice Department that oversees bankruptcy cases. Attorneys for shareholders, WMI and others involved in the bankruptcy can submit the names of potential examiners.
WMI filed for bankruptcy Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to JPMorgan for $1.9 billion. Before it failed, Washington Mutual Bank had more than 2,200 branches and $188 billion in deposits.
Walrath pushed back to Sept. 7 a hearing on whether a disclosure statement for the company’s liquidation plan contains enough information for creditors to vote on it.
WMI, its bondholders and the official committee of unsecured creditors support the proposed settlement.
Bondholder attorney Thomas Lauria said in court that shareholders cannot recover anything until creditors owed $15 billion are repaid, which he said is not possible. Lauria said shareholders pushed for an examiner in order to delay WMI’s bankruptcy case.
“What an examiner will be is a filibuster,” Lauria said.
Common and preferred shareholders oppose the settlement, along with bondholders owed money by the banking unit.
The Associated Press contributed to this story.