The collapse of the talks means that WaMu will move forward with its sixth version of a reorganization plan that proposes to give nothing to shareholders. U.S. Bankruptcy Court Judge Mary Walrath said in a hearing earlier this month that should the agreement fall apart, the parties would return to court July 5 to begin a battle on whether to approve the so-called sixth amended plan.
While the bankruptcy code requires that preferred shareholders be paid in full before common shareholders, preventing common shareholders from receiving any compensation may leave more money for noteholders in the bankruptcy case. But the collapse of negotiations isn’t the only bad news in WaMu’s bankruptcy reorganization, some hedge funds are now being investigated for allegedly using confidential information from bankruptcy documents to buy and sell WaMu debt. The allegations suggest that the hedge funds used information they gained while negotiating the sixth bankruptcy reorganization proposal for their profit by buying and selling the debtor company’s debt.
If this is true, the hedge funds could face severe punishment meted out by the bankruptcy court. One of the biggest concerns that bankruptcy attorneys, trustees and judges have about the recent wave of corporate bankruptcy filings during this recession, is that there are some “bankruptcy vultures” out there who latch onto bankrupt companies in an attempt to profit from their financial troubles, buying and selling debt and in some cases manipulating the bankruptcy process for their own financial benefit.
(source: SeattleTimes.com )