Aurelius Now Opposes WaMu Deal It Helped Draft

Jun 24 2011 | 11:49am ET

Hedge fund Aurelius Capital Management has turned its back on a deal it helped devise to settle Washington Mutual’s reorganization.

Aurelius now says the deal unfairly benefits JPMorgan Chase & Co., which bought WaMu’s banking operations.

In a court filing on Wednesday, reports Reuters, Aurelieus argued the delay in implementing the deal has drained money from creditors and suggested JPMorgan contribute more to the settlement.

Aurelius, along with three other hedge funds— Appaloosa Management, Centerbridge Capital Partners and Owl Creek Asset Management—crafted the so-called "global settlement" last year to end legal battles between WaMu, JPMorgan and the Federal Deposit Insurance Corp. For their efforts in ending lawsuits, the four were to share about $10 billion of disputed assets.

Those disputed assets include $4 billion that was on deposit with WaMu’s former bank, which JPMorgan bought from the FDIC in 2008. WaMu filed for bankruptcy the day after the sale. Aurelius argues JPMorgan could have earned over $400 million on those deposits since the start of the bankruptcy, while paying only $20 million (0.2% annually) in interest.

"At this time, the Amended Global Settlement Agreement should not be approved as fair unless (JPMorgan) provides additional value to the debtors to compensate for the substantial delays," Aurelius said in a filing with Delaware's bankruptcy court.

Reuters says an attorney for WaMu expressed surprised at the filing, in light of the court’s approval of the global settlement.

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