January 29, 2010 / 1:25 AM / 9 years ago

UPDATE 2-WaMu shareholders get their voice in bankruptcy

* Shareholders to get unified role in bankruptcy

* Culminates year-long campaign by shareholders

(Adds judge refuses to expand investigation against JPMorgan)

By Tom Hals

WILMINGTON, Del, Jan 28 (Reuters) - Shareholders of Washington Mutual Inc WAMUQ.PK will have a voice in the company’s bankruptcy after a judge refused on Thursday to disband their committee, which Washington Mutual said would complicate the case.

The U.S. Trustee, who plays an oversight role in bankruptcy, appointed the committee earlier this month after being petitioned by 3,500 shareholders. The company immediately asked the court to disband it.

The committee will be able to speak with a unified voice and hire professionals, who would be paid by the company.

Washington Mutual has said since it filed for bankruptcy in 2008 that it is hopelessly insolvent, and therefore there is no need for an official committees of shareholders.

“Evidence that debt and equity are still trading ... establishes that at least the market thinks the debt is not hopelessly insolvent,” said Judge Mary Walrath.

She also denied a request to cap the committee’s expenses at $250,000.

Much of the value of the company depends on the outcome of various legal disputes surrounding the government’s seizure of the company’s banking operations during the depth of the financial crisis in 2008.

Brian Rosen of Weil, Gotshal & Manges, which represents Washington Mutual, said there was little need for an equity committee until the outstanding lawsuits are settled. “That’s when the equity committee should come into being.”

Gregory Cross of Venable, which represents the equity committee, pointed out that the additional cost for the equity committee would be minimal for the company, which already pays for the work of 19 sets of professionals. “But one more is the straw that breaks the camels back?”

The hearing attracted an overflow crowd, drawing shareholders — from as far away as California and Seattle, where Washington Mutual is based — who have organized themselves over the past year through message boards and websites.

“There’s no settlement or outcome that will have validity for the people in this courtroom, or the 3,500 who wrote to the Trustee, without a committee,” said Cross.

Walrath also denied a request by Washington Mutual to expand an investigation of claims it may have against JPMorgan Chase & Co (JPM.N).

The company wanted to subpoena the Federal Deposit Insurance Corp, the Securities and Exchange Commission, Standard & Poor’s rating agency and several others for information regarding the events leading to the seizure of Washington Mutual’s banking operations.

Walrath has already compelled JPMorgan, which bought the seized bank for $1.9 billion, to provide documents.

“Issuing subpoenas against dozens of other parties just goes too far,” she said.

A separate agenda item about the return of a deposit was postponed to Feb. 5.

The case is In re Washington Mutual Inc, U.S. Bankruptcy Court, District of Delaware, No. 08-12229.

Reporting by Tom Hals; Editing by Phil Berlowitz

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