Industry Updates

Hedge fund Aurelius Capital criticizes WaMu probe as ‘shakedown’

Tuesday, June 21, 2011

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Opalesque Industry Update – New York – based Aurelius Capital Management has issued a scathing statement denouncing the on-going investigation into the bankruptcy of Washington Mutual Inc., and calling it a “shakedown.”

The $2.3bn hedge fund, led by former bankruptcy lawyer Mark Brodsky, is one of the hedge funds facing investigation after being accused of benefiting from insider trading that forced the bankruptcy of WaMu. But the firm insists it is a victim, in this case.

Brody said the investigation initiated by WaMu shareholders was a “malicious witch hunt” with the primary objective of forcing a settlement between Aurelius and the shareholders committee.

Brody told the court: "Aurelius prizes its integrity and reputation. It will not allow its reputation to be so sullied, it will never settle to appease such abhorrent tactics, and it has never supported the settlement with the equity committee recently under discussion."

WaMu’s shareholders’ committee are investigating four hedge funds, including Aurelius Capital, Appaloosa Management, Centerbridge Partners and Owl Creek Management, of allegedly engaging in insider trading that led to the collapse and the filing of a $7bnChapter 11 plan without a deal, by WaMu.

The committee has already questions Aurelius Managing Director Dan Groper in May, but is again seeking to depose representatives from the three other hedge funds involved.

Meanwhile, a group of WaMu creditors, like Black Horse Capital, wants to join the investigation to identify if the four hedge funds indeed used confidential information to trade in the debt of the bankrupt company.

WaMu’s trust preferred securities holders, including Lonestar Capital Management LLC, Greywolf Capital Management LP, and other holders, of WaMu’s trust preferred securities have sought a court ruling from the judge overseeing the company’s bankruptcy to order the four hedge funds to provide them trading-related data.

Previously, U.S. Bankruptcy Judge Mary Walrath granted a committee representing common and preferred shareholders’ request to question and depose the hedge funds under oath and provide the necessary documents.
Precy Dumlao

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