Before Washington Mutual Inc. can end its bankruptcy, the former owner of the biggest U.S. bank to fail must face a trial over who owns $4 billion in low-ranking debt known as trust-preferred securities.

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Washington Mutual Inc., the former owner of the biggest U.S. bank to fail, must face a trial over who owns $4 billion in low-ranking debt known as trust-preferred securities before it can end its bankruptcy.

U.S. Bankruptcy Judge Mary Walrath in Wilmington, Del., scheduled a trial of the investor lawsuit for Nov. 1, the first day of a confirmation hearing on WaMu’s reorganization proposal.

Lawyers for WaMu and investors, including Black Horse Capital and Lonestar Partners, agree the issue must be resolved before the company can end its bankruptcy and distribute more than $6 billion to creditors.

As the confirmation hearing continues in early November, other critics of WaMu’s plan may want to use any facts or arguments presented by the investors to attack the reorganization proposal, Walrath said. Shareholders claim that the holding company’s bank should never have been seized by regulators and sold to JPMorgan Chase & Co. in 2008.

“Others may want to ride your coattails,” Walrath told an attorney for Black Horse. “The first day of confirmation will be yours.”

Last month a group of investors sued WaMu and JPMorgan over the way the trust-preferred securities were converted from debtlike investments into equity. The investors, who bought $1 billion of the trust-preferred securities, got preferred equity in WaMu when the exchange happened just before WaMu collapsed.

When affiliates of WaMu raised $4 billion by selling the securities, the bank was “engaged and/or involved in rampant fraud, misrepresentation and/or reckless business practices,” investors said in a complaint filed July 6 in Delaware. JPMorgan knew about WaMu’s problems, the investors claim.

The securities were backed by $13.5 billion in home equity and home-mortgage loans. The securities, and the assets backing them, were acquired by JPMorgan when it bought WaMu’s bank for $1.9 billion, according to court records.

The investors claim that the securities should have been retained by WaMu. They want Walrath to void the conditional exchange and give the securities to them.

The investors will have a hard time winning because the securities were designed to rank below nearly all of WaMu’s other debts, Kevin Starke, senior analyst with CRT Capital Group said. That means the investors shouldn’t be able to collect money before other, more senior creditors, he said.

The securities are part of a settlement among WaMu, JPMorgan and federal regulators. Last month Walrath appointed an examiner to investigate that settlement as well as the strength of a potential lawsuit against JPMorgan and the Federal Deposit Insurance Corp. for their roles in the collapse of WaMu’s bank.