Hedge Funds Poised To Profit From, Have Legal Bills Paid By WaMu

Mar 28 2011 | 1:23am ET

Washington Mutual isn't in the banking business—or any other business, really—but it's still in the business of paying hedge fund lawyers, even though those hedge funds left it somewhat in the lurch and have been accused of insider trading.

The bankrupt former bank—which sold its banking operations to JPMorgan Chase in 2008 after federal regulators seized it—plans to follow through on its promise to pay eight law firms at least $33 million. One of those firms is Fried Frank Harris Shriver & Jacobson, which represented four hedge funds that signed on to WaMu's Chapter 11 bankruptcy plan.

Those four hedge funds, Appaloosa Management, Aurelius Capital Management, Centerbridge Partners and Owl Creek Asset Management, refused to renew that support when the original Chapter 11 plan expired earlier this year. They cited "among other things, the passage of time," although many speculate that insider-trading allegations—allegedly using information gleaned from bankruptcy negotiations—are among the other things.

All four hedge funds deny those allegations, The Wall Street Journal reports. And even though all four have dropped out of the bankruptcy plan, all are poised to profit handsomely from its approval: They all bought up billions in WaMu debt at pennies on the dollar that is now likely to be paid in full with interest.


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