WaMu bankruptcy judge rejects attempt by company to get shareholder financial data

Judge denies WaMu attempt to get shareholder data

WILMINGTON, Del. — A Delaware bankruptcy judge on Tuesday rejected Washington Mutual Inc.’s attempt to get personal financial information from shareholders who are demanding an annual company meeting.

Attorneys for the bank holding company argued that it needs to know whether the shareholders have the financial ability to wage a proxy contest before funds from the bankruptcy estate are spent on an annual meeting.

But attorneys for the shareholders committee noted that its members have promised not to wage a proxy contest, and that the company is just trying to stall.

Judge Mary Walrath, who ruled in April that shareholders could take legal action to force WMI to hold a long overdue annual meeting, agreed that WMI was not entitled to their personal financial information.

WMI hasn’t held a shareholders meeting since April 2008, five months before it filed for bankruptcy protection after the largest bank failure in U.S. history.

Members of the shareholders committee are hoping to elect new board members, alleging that the current WMI board is resisting the election of new directors who would protect shareholder interests in the company’s reorganization plan and the related settlement of a $4 billion dispute with JPMorgan Chase & Co. and the Federal Deposit Insurance Corp.

While ruling in favor of WMI’s official equity committee on the proxy issue, Walrath told several individual shareholders representing themselves that their investments in the company must be treated as stock, which is subordinate to other claims in bankruptcy, and that there was no guarantee they would recover any of their losses in Washington Mutual’s reorganization plan.

“I’m not that omniscient,” the judge said.

Robert Rankel of New York told Walrath that he invested in WMI based on fraudulent and misleading information provided by the company, which filed for bankruptcy protection in 2008 after the FDIC seized its flagship bank and sold its assets to JPMorgan for $1.9 billion. The sale resulted in the two banking companies and the government agency trading lawsuits over roughly $4 billion in disputed deposit accounts.

“We lost our life savings in this whole thing,” Rankel told the judge. “… They’ve committed fraud and they’ve totally misled people. … They lied, intentionally, because of greed and corruption in the company.”

Walrath told Rankel that even assuming he had a legitimate fraud claim, it would have to be paid after the claims of other creditors.

Also Tuesday, Walrath ruled that holders of $1 billion in WMI securities who are suing to protect their investment from being transferred to JPMorgan Chase as part of the bankruptcy organization are entitled to information from WMI, JPMorgan and federal regulators.

Attorneys for WMI and JPMorgan argued that the complaint by securities holders should be saved for a hearing on whether the court should confirm WMI’s reorganization plan.

But James Stoll, an attorney for securities holders led by Black Horse Capital, said a dispute over title ownership of assets is considered a separate issue under the bankruptcy code.

The complaint by the securities holders centers on the purported exchange of $4 billion in securities into WMI preferred stock when Washington Mutual bank was seized. 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.

Walrath ordered WMI and JPMorgan to provide information to securities holders in response to the complaint but indicated that the she didn’t want her ruling to interfere with information being exchanged with other creditors in advance of a Nov. 1 hearing to determine whether she should approve WMI’s 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 would get 80 percent of expected tax refunds resulting from Washington Mutual’s prior operating losses that 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.