Industry Updates

Hedge fund Aurelius Capital denies profiting from inside information on WaMu debt

Tuesday, July 19, 2011

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Opalesque Industry Update - New York – based Aurelius Capital Management on Monday told the court that it never used confidential information to profit in Washington Mutual's bankruptcy case to trade in its securities.

Aurelius Managing Director Dan Gropper testified before the U.S. Bankruptcy Court in Wilmington, Delaware to deny charges by WaMu’s shareholders accusing the hedge fund of benefitting from inside information about the bankrupt mutual fund. Gropper said the Aurelius has very strict policy against insider trading.

To prove his point, Gropper disclosed that the company spent $150,000 to soundproof his office and that he receives phone calls at least 30 feet away from the trading desk. “We are absolutely compulsive about this compliance,” Gropper testified before the court, referring to restrictions on insider trading in general.

WaMu shareholders are asking U.S. Bankruptcy Judge Mary Walrath not to accept the second reorganization plan of WaMu which Aurelius negotiated with three other hedge funds. Under the plan which will pay creditors more than $7bn, shareholders will receive nothing.

WaMu shareholders now accuse Aurelius and the three other hedge funds of using confidential information they allegedly obtained during the negotiations.

Gropper will resume his testimony today (July 19) as Walrath weighs down the arguments of both parties whether to accept or reject the reorganization plan. The plan is focused on the settlement of lawsuits between Washington Mutual, the Federal Deposit Insurance Corp. and JPMorgan Chase against one another after the FDIC seized WaMu's flagship bank in 2008 and sold its assets to JPMorgan.

Last month, Aurelius criticized the on-going investigation into the bankruptcy of WaMu and called it a “shakedown.”
Precy Dumlao

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