NEW YORK ( TheStreet) -- The Federal Deposit Insurance Corp. is responding to a "massive document request from Congress regarding the resolution of Washington Mutual Bank (WAMUQ.PK)," it disclosed in a recent bankruptcy court filing. Washington Mutual's seizure and sale has drawn more considerable criticism from Washington Mutual shareholders, who have sued the FDIC and JPMorgan Chase ( JPM), which acquired the bulk of WaMu's assets in the Fall of 2008. The inquiry first reported Wednesday by the Puget Sound Business Journal, comes from the Senate Permanent Subcommittee on Investigations, chaired by Carl Levin (D., Mich). Kevin Starke, an analyst at CRT Capital who has been following the proceedings closely, wrote in a research note Thursday that the news is positive for all securities issued by Washington Mutual's operating company and its holding company. Starke and others have been skeptical about the likelihood of a recovery in common shares, and Starke says his skepticism continues despite the positive news. Instead, he recommends senior bonds issued by WaMu's operating company, which were trading at about 43 cents on the dollar Wednesday. "We think it should be politically unpalatable for JPMorgan (JPM) to 1. purchase the WMB assets for $1.9 billion; 2. subsequently write up the value of the assets by $1.9 billion; and 3. claim a multibillion-dollar tax refund on the basis of Wamu's prior-year losses. But we didn't have a sense that anyone in Washington was focusing on the transaction. The news of the broad subpoena indicates that perhaps some people are focused," Starke writes.
Starke believes Washington politicians and regulators will be hesitant to reward vulture investors who have bought WaMu securities on the cheap following its 2008 bankruptcy. However, he told TheStreet by phone that many WaMu shareholders and bondholders remain who purchased the securities before the company was seized and are sitting on considerable losses. -- Written by Dan Freed in New York. Read More: Sheila Bair's puzzling WaMu comments. A financial scandal for 2010?