Aurelius Decries ‘Shakedown’ As WaMu Creditors Seek To Join Hedge Fund Probe

Jun 22 2011 | 9:43am ET

Several hedge funds are taking aim at four other hedge funds in the wake of the collapsed agreement on Washington Mutual’s exit from bankruptcy.

Black Horse Capital, Greywolf Capital Management and Lonestar Capital Management, among other holders of the former bank’s trust preferred securities, have asked a court for permission to join WaMu’s common shareholders’ investigation of possible insider-trading by the four hedge funds, which helped craft WaMu’s reorganization plan. The group wants the four funds—Appaloosa Management, Aurelius Capital Management, Centerbridge Capital Partners and Owl Creek Asset Management—to hand over documents.

U.S. Bankruptcy Judge Mary Walrath previously gave common shareholders the right to subpoena and depose the hedge funds, and after a deal to settle the insider-trading allegations collapsed earlier this month, common shareholders indicated that they would move forward with the depositions.

The firm of one of the deposed, Aurelius’ Dan Gropper, blasted the preferred creditors and vowed total resistance.

“Aurelius prizes its integrity and reputation,” the New York-based firm wrote in a court filing Friday. “It will not allow its reputation to be so sullied, it will never settle to appease such abhorrent tactics, and it has never supported the settlement with the equity committee recently under discussion.”

“The motion to compel would multiply the millions of dollars in unfair expense and burden already placed upon Aurelius to date by this groundless shakedown operation and is calculated only to create an excuse to delay confirmation proceedings indefinitely until a ransom is extorted.”

Walrath is set to rule on July 13 on WaMu’s current Chapter 11 exit plan, which is opposed by the common shareholders.

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