Hedge Funds Could Face Insider-Trading Lawsuit In WaMa Bankruptcy

Sep 15 2011 | 1:02pm ET

Four hedge funds may have to defend themselves against insider-trading charges after a federal judge for the second time blocked Washington Mutual's bankruptcy plan.

U.S. Bankruptcy Judge Mary Walrath in Wilmington, Del., found that the collapsed bank's shareholders had established a "colorable" case that the four hedge funds, known as the "settlement noteholders," had violated insider-trading laws during their involvement in WaMu's Chapter 11 plan negotiations. But, while ruling that the shareholders produced enough evidence that "the settlement noteholders knowingly traded with knowledge that the debtors were engaged in global settlement negotiations… of which the trading public was unaware" to sue the hedge funds, she blocked any immediate litigation, ordering the parties to mediation.

Walrath, who said she was concerned that "the case will devolve into a legal morass," did reject the shareholders' allegations that the hedge funds, Appaloosa Management, Aurelius Capital Management, Centerbridge Partners and Owl Creek Asset Management, controlled WaMu, meaning the Chapter 11 plan was negotiated in bad faith. Instead, she wrote that "the actions of the settlement noteholders appear to have helped increase the debtors' estates."

All four hedge funds have denied any wrongdoing.

Nor did Walrath reject the main points of the bankruptcy plan, although she ordered that senior debt holders would have to settle for a lower rate of interest.


In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.