WAMUQ Washington Mutual Inc

[chuck44l]

Billions at Stake

The hedge funds stand to lose possibly billions should equity eventually prevail at trial. Together the four funds hold approximately $2.5 billion of the parent company’s debt which is at risk for disallowance. The equity committee has also made a motion to litigate seeking that the hedge funds pay the estate’s legal fees and compensate the estate for interest accruals because their actions have unduly prolonged the bankruptcy process. So far legal fees in the case have amassed at $240 million in conjunction with over $785 million in bond interest. In all the hedge funds could possibly be on the hook for over $3.5 billion.

Then there is the matter of the SEC. One of the hedge funds involved already has had a recent run in with the law. In July 2010, Appaloosa Management paid more than $1.3 million in forfeited profits and penalties resulting from stock trades that regulators said “willfully violated” federal rules. The trades involved a Wells Fargo (WFC) shorting maneuver in November 2008. The fine included a civil penalty of $421,250 and disgorgement of $842,500 in profits. Should a future ruling of insider trading come down strong enough it is possible authorities would then make their own pass at the hedge funds, with accompanying civil penalties in the hundreds of millions. If the SEC were to exact a 50% civil penalty on the hedge fund’s total WaMu (WAMUQ.PK) holdings, the fine could be up to $1.25 billion, two and a quarter times more than Goldman Sachs (GS) record $550 million settlement. Finally there’s the possibility of loss of goodwill in the form of negative publicity and lost clientele from an SEC investigation and penalty.

All in all, a lost trial could possibly cost some of the hedge funds their businesses entirely.

An Urge to Settle, Impassioned Shareholders

As all parties head towards mediation there is certainly an urge to settle as far as the hedge funds are concerned. If they do not make an adequate settlement offer then the shareholders will likely fight on with the intent of inflicting the maximum financial penalty. Currently with how the debtors have structured their reorganization, shareholders have nothing to lose and everything to gain by going to trial.

The dilemma the hedge funds now face is entirely of their own creation. Early on in the case WaMu, likely highly influenced by the hedge funds blocking position of debt holdings, repeatedly urged the courts that the parent company was insolvent and that the shareholders should have no official representation. By doing so the hedge funds only managed to accomplish infuriating thousands of individual shareholders, resulting in the independent objections like Nate Thoma’s which has since placed them at this financial precipice. Had the hedge funds brought equity on board early with even a small recovery they may have not faced the resistance they do now.

Instead the shareholders have good reason to be upset, considering the suspicion generated by the current hedge fund influenced GSA. In it, $10 billion of cash and tax refunds are split among WaMu, JP Morgan (JPM), and the FDIC with such financial precision that that the “goal posts” of distributable money land almost exactly between WaMu’s debt and equity. By all appearances the hedge funds seemed only concerned about themselves at the bargaining table. When they were assured full payment of their claims they stopped trying to maximize any further recovery for the estate.

According to WaMu’s last reorganization plan the money comes just $40 million short of equity in an estate worth over $8 billion. Restated, the shareholders currently stand just one half of one percent out of the money; in a plan that also pays JP Morgan $2.1 billion in tax refunds.

"Bonanza" for JP Morgan

The legitimacy of the $2.1 billion payment to JP Morgan remains questionable to some, given the terms under which the bank accepted TARP. In order to skirt the law, the current arrangement is for WaMu to receive all of their tax refunds from the IRS, after which they will then make a recourse payment to JP Morgan and the FDIC. Put plainly, WaMu will act as a middleman to help JP Morgan circumvent the law. Whether this is legal or equitable has never been decided by the court. Instead Judge Walrath admits that:


"The Court's conclusion in the January 7 Opinion was not a decision on the merits of the underlying claims but merely a determination that the settlement of those claims by the Debtors on the terms of the GSA was reasonable."


In other words the judge is allowing for “under the table” agreements to exist, regardless if JP Morgan actually has a legal right to the tax refunds. If most all parties agree to it, her intent is to support any form a “reasonable” settlement so the case can be resolved. Keep in mind that in bankruptcy court, the bar for “reasonableness,” like the current insider trading claims, is exceptionally low. As the hedge funds have now suddenly learned, in Delaware the sword cuts both ways.

So far the collapse of Washington Mutual has been called a “bonanza” for JP Morgan, according to Peg Brickley of Dow Jones Daily Bankruptcy Review (article later redacted). As I reported previously, according to the GSA’s current terms JP Morgan will receive $5 billion in HELOC backed securities valued on the open market at 60% of par, $193 million in Visa class B securities, $2.1 billion in cash, and a $20 million wind farm, all from WaMu. Given the initial purchase price of WaMu for $1.9 billion in 2008, these additional assets received means that JP Morgan will pay a negative $3.4 billion for their purchase of the bank.

The very lucrative nature of this settlement leads American Banker to believe that JP Morgan may eventually chip more into the pot to pay shareholders. Banker concludes in their most recent article, “Many creditors are looking to JPMorgan Chase to drive mediation discussions, as it can't get the benefit of its deal until Washington Mutual's Chapter 11 plan is in place.”

Uncertainty and "Skepticism"

It is uncertain how much WaMu’s shareholders will receive from mediation. Unless the terms of the current GSA change, all equity will be able to recover is what debt claims the hedge funds are willing to part with to settle not going to trial. Then even among equity there is a hurdle, with approximately $7.5 billion in preferred stock that under the typical waterfall scenario should be paid in full before common shares receive a payment.

WaMu however is far from the typical bankruptcy. The standard waterfall scenario will likely be overlooked in an effort to reach a compromise among everyone. One possibility would be for the hedge funds to reduce their claims sufficiently to allow equity to take full ownership of the reorganized company. An agreement would also likely include enough cash for WMMRC to operate going forward. It would then be up to the shareholders to make the most of the company’s large NOL asset.

Some however are not so optimistic. CRT Capital Group analyst Kevin Starke told Dow Jones Daily Bankruptcy Review that he was "skeptical" mediation would resolve the impasse. I think otherwise. The fact that the case nearly settled once before is a hint there may be a second chance at success. Back in May the stakes for the hedge funds were much lower. Now with the judge’s preliminary ruling in favor of the equity the funds have to weigh out the real risk of what insider trading would do to them and what that risk is worth to them.

WaMu’s shareholders are likely to get something. The million dollar question is how much. To that no one knows the answer, except for the insiders.

[chuck44l]

Judge: "One of largest mortgage origination frauds"

* Kontogiannis already in prison for money laundering

* Banks lost combined $98 mln from fraud

NEW YORK, Oct 5 (Reuters) - A New York real-estate developer jailed for laundering bribes for former Congressman Randy "Duke" Cunningham was sentenced to nine years in prison Wednesday for playing a lead role in what a federal judge called "one of the largest mortgage origination frauds on record."

Thomas Kontogiannis, 62, received an initial sentence of 12 years 10 months, which was then reduced by U.S. District Judge Kiyo Matsumoto to nine years, to be served concurrently with the remainder of the eight-year sentence he received in 2008 for laundering money given to Cunningham, a former member of the U.S. House of Representatives who admitted to taking $2.4 million in bribes.

Kontogiannis, a U.S. citizen born in Greece, pleaded guilty in October 2010 to conspiring to commit bank and wire fraud. He faced up to 30 years in prison on that charge.

During the sentencing hearing in Brooklyn federal court, Matsumoto called Kontogiannis' scheme "one of the largest mortgage-origination frauds on record" in the United States.

"The offense is extremely serious, especially in light of the staggering losses," Matsumoto said.

From 2003 until 2007, Kontogiannis sold to Washington Mutual (WAMUQ.PK) and DLJ Mortgage Capital Inc, a subsidiary of Credit Suisse AG (CSGN.VX), mortgages he had fraudulently obtained on properties he owned in the New York boroughs of Queens and Brooklyn, according to federal prosecutors in Brooklyn.

Prosecutors said Kontogiannis arranged for family members, friends and employees to pose as straw buyers, taking out mortgages repeatedly on the properties. The mortgages, financed by entities controlled by Kontogiannis, were then sold to secondary buyers at the banks.

The banks lost a combined $98 million when payments stopped coming in on the fraudulent mortgages, prosecutors said. Kontogiannis has been ordered to pay that sum back to the banks in full.

Kontogiannis was arrested in June 2009 along with eight other individuals charged in the fraud. So far, seven of his co-defendants have pleaded guilty, according to the U.S. Attorney's Office.

An attorney for Kontogiannis, Gregory O'Connell, declined to comment.

The case is U.S. v. Kontogiannis et al., in the U.S. District Court for the Eastern District of New York, no. 09-360.

For Kontogiannis: Gregory O'Connell and Philip Patterson of DeFeis O'Connell & Rose.

For the U.S.: Assistant U.S. attorneys Shannon Jones and Claire Kedeshian.

[chuck44l]

SEATTLE, Oct. 7, 2011 /PRNewswire/ -- Washington Mutual, Inc. (Pink Sheets:WAMUQ.PK.pk - News) ("WMI" or the "Company") today confirmed that it has instructed The Depository Trust Company ("DTC") to release, and return to the target CUSIP accounts, securities that were tendered into contra-CUSIP accounts established with DTC. Once securities have been returned to the target CUSIP accounts, such securities will be available for trading by the holders of such securities. These securities were tendered to contra-CUSIP accounts for the purpose of identifying and "freezing" trading of the securities in connection with release and exchange elections made with respect to WMI's proposed Modified Sixth Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code, dated February 7, 2011 (as amended, modified or supplemented from time to time, the "Plan").

The holders of the securities will have an opportunity to resubmit release and exchange elections in connection with any modification to the Plan or any other chapter 11 plan of reorganization filed in the future. Except as noted below, all prior elections with respect to released securities shall be disregarded.

Holders of (a) WMB Senior Notes – both those who filed claims classified as "WMB Senior Notes Claims" in Class 17A as well as Non-Filing WMB Senior Note Holders – and (b) preferred shares classified as "REIT Series" in Class 19 shall not have an opportunity to resubmit release elections; such holders' elections made in connection with the Plan shall remain valid and enforceable in connection with respect to any modification to the Plan or any other chapter 11 plan of reorganization filed in the future. To the extent that a holder elected to grant the releases set forth in the Plan, such holders' information was recorded in an escrow CUSIP account established with DTC, or recorded by Euroclear Bank S.A./N.V. ("Euroclear") or Clearstream Banking, societe anonyme ("Clearstream") as applicable, prior to such holders' securities being previously released from the contra-CUSIP.

Security holders affected by these procedures should consult with their respective financial and legal advisors.

Additional details, as well as WMI's Plan and related disclosure statement are available at www.kccllc.net/wamu. This press release is not intended as a solicitation for a vote on the Plan.

[chuck44l]

Mon Oct 24, 2011 12:24pm EDT

* Lawsuit can proceed on 13 tranches, 110 are dismissed



Judge grants class certification on remaining claims

Oct 24 (Reuters) - A U.S. judge narrowed a lawsuit brought by buyers of mortgage backed securities from Washington Mutual Inc who alleged they were misled on the quality of the underlying loans, according to a ruling.

The decision released last week finds that plaintiff pension funds have the right or standing to proceed on 13 tranches of MBS, but dismisses from the lawsuit claims related to 110 other tranches.

A tranche is a piece of a securities offering.

U.S. District Judge Marsha Pechman in Seattle also granted class certification for the 13 remaining tranches in the case.

Plaintiff attorney Steven Toll said he was pleased about the class action ruling.

"While we are disappointed that the court did not uphold our standing to represent those who filed similar claims against WaMu, this is very good news for investors in the class," Toll said in a statement.

A WaMu representative did not have an immediate comment on Monday.

Pechman ruled that the plaintiffs only have the right to pursue claims on tranches that they actually purchased, but not others that were sold in the same offering.

Pechman's ruling is similar to a separate opinion last year from a federal judge in Los Angeles, who dismissed MBS claims involving Bank of America's Countrywide unit.

The WaMu case in U.S. District Court, Western District of Washington, is In Re Washington Mutual Mortgage-Backed Securities Litigation, 09-37

[chuck44l]

Mon Oct 24, 2011 2:43pm EDT

* Lawsuit can proceed on 13 tranches, 110 are dismissed

* Judge grants class certification on remaining claims

Oct 24 (Reuters) - A U.S. judge narrowed a lawsuit brought by buyers of mortgage-backed securities from Washington Mutual Inc who alleged they were misled on the quality of the underlying loans, according to a ruling.

The decision released last week finds that plaintiff pension funds have the right or standing to proceed on 13 tranches of MBS, but dismisses from the lawsuit claims related to 110 other tranches.

A tranche is a piece of a securities offering.

U.S. District Judge Marsha Pechman in Seattle also granted class certification for the 13 remaining tranches in the case.

Plaintiff attorney Steven Toll said he was pleased about the class action ruling.

"While we are disappointed that the court did not uphold our standing to represent those who filed similar claims against WaMu, this is very good news for investors in the class," Toll said in a statement.

Washington Mutual filed for Chapter 11 bankruptcy when regulators seized its savings and loan institution in September 2008 in the biggest bank failure in U.S. history. The thrift was sold to JPMorgan Chase & Co and the parent company landed in bankruptcy.

Andrew Siegel, a spokesman for Washington Mutual Inc, said on Monday that the company is reviewing the order and "assessing potential impact, if any, on its Chapter 11 proceedings."

Pechman ruled that the plaintiffs only have the right to pursue claims on tranches that they actually purchased, but not others that were sold in the same offering.

Pechman's ruling is similar to a separate opinion last year from a federal judge in Los Angeles, who dismissed MBS claims involving Bank of America's Countrywide unit.

The WaMu case in U.S. District Court, Western District of Washington, is In Re Washington Mutual Mortgage-Backed Securities Litigation, 09-37.

[chuck44l]

Please note that this news is from Oct 28 and was posted to update the WAMUQ thread.

BERKELEY, Calif., Oct. 28, 2011 /PRNewswire/ -- Hagens Berman Sobol Shapiro LLP today announced that it is investigating bringing lawsuits on behalf of investors in Washington Mutual's (OTC:WAMUQ.ob - News) ("WaMu") mortgage-backed securities ("MBS") after a federal judge refused to certify a class representing all tranches of the following certificates: 2006 AR-7, 2006 AR-12, 2006 AR-16, 2006 AR-17, 2006 AR-18, 2007-HYI.

The case, filed in the United States District Court for the Western District of Washington in Seattle, alleged that WaMu misled investors regarding the quality of the loans underlying the MBS.

Judge Marsha J. Pechman certified the class-action lawsuit on October 21, 2011, ruling that plaintiffs representing 13 tranches of MBS could pursue their case against the former banking giant.

However, the judge did not certify an additional 110 other tranches of MBS because the plaintiffs in the case did not purchase those tranches.

Hagens Berman is investigating this issue further and is willing to speak with investors who purchased the additional tranches of MBS the lawsuit had identified, including the following WaMu Mortgage Pass-through certificates:


2006 AR-7 other than tranche 1A
2006 AR-12 other than tranche 1A1
2006 AR-16 tranches 2A1, LB1, LB2, LB3, 3B1, 3B2, and 3B3
2006 AR-17 other than tranche 1A
2006 AR-18 other than tranche 2A1
2007-HYI tranches other than 1A1 and 3A3




The firm is investigating whether individuals who purchased these MBS may have a legal claim if brought separately in a new lawsuit.

Investors and others who purchased these MBS are encouraged to contact partner Reed R. Kathrein, who is leading the firm's investigation. Mr. Kathrein can be reached at (510) 725-3000 or via email at WaMuMBS@hbsslaw.com. Investors can also learn more about this investigation at www.hbsslaw.com/WaMuMBS.

Persons with knowledge that may help the investigation are encouraged to contact the firm. The SEC recently finalized new rules as part of its implementation of the whistleblower provisions in the Dodd-Frank Wall Street Reform Bill. The new rules protect whistleblowers from employer retaliation and allow the SEC to reward those who provide information leading to a successful enforcement with up to 30 percent of the recovery.

About Hagens Berman

Seattle-based Hagens Berman Sobol Shapiro LLP is an investor-rights class-action law firm with offices in ten cities. Founded in 1993, the firm's mission is to represent plaintiffs in class actions and multi-party, large-scale litigation that has the potential to protect the rights of investors, consumers, workers and the environment. The National Law Journal has rated Hagens Berman as one of the top plaintiffs' firms in the country four out of the last five years. More information about the firm is available at www.hbsslaw.com, and the firm's securities law blog is at www.meaningfuldisclosure.com.

Media Contact: Mark Firmani, Firmani + Associates Inc., 206.443.9357 or mark@firmani.com