Hedge Funds Fight WaMu Insider-Trading Claims Ahead Of Ruling

Aug 29 2011 | 1:24pm ET

Four hedge funds accused of insider-trading in Washington Mutual debt await—along with their accusers, the former bank and all others with an interest in the WaMu bankruptcy—the ruling of a judge to see what, if any, repercussions those allegations will have.

U.S. Bankruptcy Judge Mary Walrath in Wilmington, Del., told all sides last week that she was "a long way toward an opinion" on whether to approve WaMu's bankruptcy plan. She almost did so in January, finding the plan fair and reasonable, but withheld her approval after some WaMu shareholders accused the four hedge funds of insider-trading.

Both WaMu and the hedge funds have dismissed those allegations as a "carney show."

During last week's hearing, a lawyer for one of the hedge funds, Aurelius Capital Management, argued that Walrath would have to make a finding of fraud and rule that the hedge funds had a fiduciary duty to other creditors and investors to prevent them from being repaid the $1 billion they are owed.

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