(Updates with issue to be mediated in sixth paragraph.)
Oct. 11 (Bloomberg) -- Washington Mutual Inc.’s bankruptcy judge appointed a fellow judge to try to settle differences among shareholders, hedge funds and other creditors of the former owner of the biggest U.S. bank to fail.
U.S. Bankruptcy Judge Raymond T. Lyons will lead mediation sessions aimed at resolving disputes that have helped to prevent WaMu from ending its bankruptcy and distributing $7 billion to creditors. Lyons, who is based in Trenton, New Jersey, will file a report by Nov. 4 on whether mediation succeeded, failed or needs more time.
WaMu, based in Seattle, filed for bankruptcy on Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to JPMorgan Chase & Co. for $1.9 billion. Washington Mutual Bank had more than 2,200 branches and $188 billion in deposits.
U.S. Bankruptcy Judge Mary Walrath has twice rejected WaMu’s reorganization proposal, which is built on a settlement splitting billions of dollars in cash and tax refunds among the company’s creditors, JPMorgan and the Federal Insurance Deposit Corp. Walrath approved the settlement and rejected the reorganization plan.
The parties in the mediation will include four hedge funds that helped negotiate the plan and shareholders who oppose it. Shareholders accuse the hedge funds of using non-public information that they gained while helping to negotiate the plan to trade WaMu securities.
The hedge funds deny the allegations. Walrath gave shareholders permission to sue the funds. How to resolve the insider-trading allegations is the main issue that will be covered by the mediation.
The case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
--Editors: Stephen Farr, Peter Blumberg
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