Bankruptcy Crt OKs Probe Of JPMorgan's Role In WaMu Collapse
By PEG BRICKLEY Of DOW JONES DAILY BANKRUPTCY REVIEW
WILMINGTON, Del. -- A U.S. bankruptcy judge has authorized the former parent of failed savings and loan Washington Mutual Bank, or WaMu, to quiz JPMorgan Chase & Co. (JPM) over suspicions that JPMorgan Chase engineered the biggest banking collapse in U.S. history.
Judge Mary F. Walrath gave the green light to a special bankruptcy probe into JPMorgan's role in the events leading to WaMu's seizure by regulators in September 2008.
The probe will track claims made in a Texas lawsuit in which investors allege JPMorgan, "which had long coveted [WaMu's] depositor base and branch network, drove down [WaMu's] value so it could purchase [WaMu's] assets at a fire-sale price," Walrath said in an opinion filed Wednesday with the U.S. Bankruptcy Court in Wilmington, Del.
A spokeswoman for JPMorgan couldn't immediately be reached for comment on the ruling.
Institutional investors who own stock and debt issued by Washington Mutual Inc. (WAMUQ), the parent company, claim JPMorgan spread rumors that fueled a run on WaMu that stripped it of $16.7 billion worth of deposits over a 10-day period, Walrath noted.
WaMu's former parent, Washington Mutual Inc., is looking for grounds to sue JPMorgan, which paid only $1.9 billion for WaMu after it was seized by regulators.
Months earlier, JPMorgan had unsuccessfully attempted to buy the hefty savings and loan, which was saddled with bad mortgage loans.
Seizure of its prized asset forced WaMu's parent company, Washington Mutual Inc., to seek Chapter 11 protection. Creditors are out billions of dollars due to the deal.
Walrath on Wednesday rebuffed JPMorgan's efforts to block the probe, finding that WaMu's parent raised questions separate from those already being litigating.
JPMorgan has filed or been targeted in lawsuits involving ownership of $4.4 billion in cash that was in the parent company's bank accounts at WaMu when the thrift was seized.
Lawyers for JPMorgan argued that the parent company shouldn't be allowed to make an end-run around the rules of lawsuit discovery by invoking special bankruptcy investigative powers.
Walrath said the proposed Rule-2004 investigation could break new ground. Rule 2004 is a special bankruptcy tool that allows companies and creditors to gather information that may or may not lead to lawsuits.
WaMu's parent said allegations of business wrongs that contributed to the thrift's seizure, if true, would give rise to "highly valuable" claims against JPMorgan.
Dow Jones Daily Bankruptcy Review; 302-521-2266; peg.brickley@dowjones.com ----------- An der Börse sind 2 mal 2 niemals 4, sondern 5 minus 1. Man muß nur die Nerven haben, das minus 1 auszuhalten.
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