WaMu Hedge Funds Seek Appeal Of Bankruptcy Plan Rejection

Sep 28 2011 | 10:44am ET

Four hedge funds involved in the crafting of Washington Mutual's bankruptcy plan have appealed a U.S. Bankruptcy Court's rejection of that plan.

The so-called "settlement noteholders," Appaloosa Management, Aurelius Capital Partners, Centerbridge Partners and Owl Creek Asset Management, were due billions of dollars under the plan presented by WaMu. The group has also appealed U.S. Bankruptcy Court Judge Mary Walrath's ruling that could pave the way for an insider-trading lawsuit against it.

Walrath put the plan on hold for a second time earlier this month, finding that the Chapter 11 plan proposed a higher interest rate than permissible and that WaMu's shareholders, who challenged the plan, had offered a "colorable" case that the hedge funds had violated insider-trading laws.

The judge did temporarily block any lawsuit against the hedge funds, ordering the parties to mediation.

The hedge funds yesterday asked Walrath's permission to appeal her ruling while that mediation is under way. In a court filing, a lawyer for Aurelius complained that allowing shareholders to sue it and the other hedge funds "radically distorts securities and bankruptcy law and inflicts a gross injustice."

The hedge funds have denied any wrongdoing during their involvement with the WaMu bankruptcy plan.

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