* Amends bankruptcy plan after court rejection
* Drops rights offering
* Says to seek votes for amended plan
(Rewrites throughout with investigation of insider trading
among hedge funds)
By Tom Hals
WILMINGTON, Del., Feb 8 Washington Mutual Inc
shareholders were given permission by a judge on Tuesday to
investigate allegations of insider trading against hedge funds
that helped craft the company's reorganization plan.
Owl Creek Asset Management LP, Appaloosa Management LP,
Centerbridge Partners LP and Aurelius Capital Management LP
were accused in December by investor Nate Thoma of using their
positions to profit on trades in the company's securities.
While Delaware bankruptcy judge Mary Walrath treated the
allegations as hearsay, she cited the claims in her January
opinion rejecting the company's reorganization plan.
The four hedge funds have large holdings of various
Washington Mutual securities and were part of a settlement of
legal disputes at the heart of the rejected reorganization
An attorney representing the funds did not immediately
return a call for comment. In court documents, the funds called
the allegations "baseless" and "last-gasp point of leverage."
Washington Mutual filed a new plan on Tuesday aimed at
resolving Walrath's criticisms. Notably, the hedge funds were
no longer part of the settlement and it scrapped a rights
offering that would have put them in control of the company's
post-bankruptcy business, which will have valuable tax
Washington Mutual said in a statement the hedge funds were
no longer part of the settlement because they did not want to
extend its termination date. The prior settlement expired on
Jan. 31 and the new settlement expires April 30.
Washington Mutual needs approval of its amended bankruptcy
plan to begin distributing more than $7 billion to its
creditors, which range from hedge funds holding bonds to
suppliers such as software suppliers.
The new plan also rolls back the number of parties
protected from being sued. The company said in court documents
that no party that voted to approve the previous plan is
adversely affected in the amended version.
Washington Mutual filed for bankruptcy in September 2008
after regulators seized its savings and loan, which was the
biggest bank failure in U.S. history.
It spent the first 18 months in bankruptcy fighting with
the Federal Deposit Insurance Corp, which sold the seized bank,
and JPMorgan Chase & Co (JPM.N), which bought it for $1.88
billion, over the ownership of assets and blame for the
The company reached a settlement last year that divided $10
billion of assets and ended the legal disputes.
Rather than a rights offering, the company plans to
distribute the reorganized company's stock to creditors. The
company said it could still decide to liquidate or sell its
remaining business, which centers around a mortgage reinsurer.
The judge also denied a request by shareholders to appeal
to the Circuit Court her finding that the company's settlement
was fair. They will have to appeal to a lower District Court
The case is In re Washington Mutual, U.S. Bankruptcy Court,
District of Delaware, No. 08-12229.
(Reporting by Tom Hals; editing by Andre Grenon)