WaMu Begins Bankruptcy Showdown

Washington Mutual began bankruptcy court proceedings to help finanlize a restructuring plan for WaMu.
By Maria Woehr ,

NEW YORK (

TheStreet

) --

Washington Mutual Inc.

began bankruptcy court proceedings Wednesday in its dispute with several hedge funds and

JPMorgan Chase

(JPM) - Get Report

.

The dispute is the largest hurdle Washington Mutual has in finalizing a reorganization plan, according to a

Bloomberg article.

The conflict focuses on $4 billion in securities that

Black Horse Capital

,

Greywolf Capital Partners

,

Guggenheim Partners

and

Lonestar Partners

purchased after the bankruptcy for 4 cents on the dollar. They filed a lawsuit earlier this year, claiming federal regulators didn't have a right to exchange preferred securities into preferred stock when seizing WaMu in September 2008.

The hedge funds are alleging that the exchange of the securities never happened, and preferred stock was never issued. The securities holders also claim that WaMu did not have authority to transfer the securities to its bank subsidiary or to JPMorgan.

JPMorgan wants the bankruptcy court to rule that investors lost the trust- preferred securities when WaMu's bank was seized by the FDIC in September 2008, according

to The Washington Post.

WaMu was sold to J P Morgan for $1.9 billion following the seizure.

Investors likely would receive nothing in WaMu's reorganization plan.

--Written by Maria Woehr in New York.

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