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Wall Street Journal Online

"Former WaMu's Parent Asks Court Permission to Probe J.P. Morgan"

MAY 20, 2009, 3:42 P.M. ET
By PEG BRICKLEY
WILMINGTON, Del. -- The former parent of Washington Mutual Bank, or WaMu, Wednesday argued it should be able to use special bankruptcy powers to probe suspicions J.P. Morgan Chase & Co. plotted to gain the "long-coveted" thrift "at "fire-sale" prices.

Judge Mary F. Walrath said she would rule later on the parent company's bid to investigate J.P. Morgan's role in the events leading up to the September 2008 seizure of WaMu, an investigation that the parent company says could be key to paying off billions of dollars in debts left behind.

Regulators said WaMu was teetering on the brink of collapse at the time of the takeover last fall and needed to be put into responsible hands. Almost overnight, the Federal Deposit Insurance Corp. sold WaMu to J.P. Morgan for $1.9 billion. The move plunged WaMu's former parent, Washington Mutual Inc., into bankruptcy and stunned investors in the Seattle banking operation's stock and debt.

A judge of the U.S. Bankruptcy Court in Wilmington, Del., Ms. Walrath is presiding over Washington Mutual's Chapter 11 case. WaMu's former parent says it needs to find out whether WaMu's new owner, J.P. Morgan, engaged in "a conspiracy, a plot" to get the thrift it had unsuccessfully attempted to buy, parent company attorney Michael Carlinsky said Wednesday.

Mr. Carlinsky urged Ms. Walrath to clear the way for an examination of J.P. Morgan; U.S bankruptcy law allows companies and creditors in Chapter 11 to look for grounds to sue. The chance to sue J.P. Morgan over business wrongs, such as misuse of confidential information, would be "highly valuable," the parent company said in court filings.

J.P. Morgan asked Ms. Walrath to block the probe and said WaMu's former parent can get the information it needs through existing lawsuits. J.P. Morgan, WaMu's parent and the FDIC are involved in a series of lawsuits nationwide.

Mr. Carlinsky said the existing lawsuits focus largely on who has rights to $4 billion in cash that was in the parent company's accounts at WaMu when the thrift was taken over and sold off to J.P. Morgan.

That's far different from the area WaMu's parent wants to investigate. It specifically wants to look at the possibility that J.P. Morgan, a thwarted suitor, leaked confidential information and manipulated the market to make WaMu look more troubled than it actually was, Mr. Carlinsky said. If the parent company can prove J.P. Morgan engineered WaMu's ruin, then pounced on the ailing thrift, it can sue for wrongs to the business, said Mr. Carlinsky, a lawyer with the firm of Quinn Emanuel Urquhart Oliver and Hedges.

On Tuesday, WaMu's former parent filed papers seeking a quick court order to force .P. Morgan to release the bank-account cash.

Mr. Carlinsky said J.P. Morgan is playing for delay, which means profit for J.P. Morgan because it has control of $4 billion in cash that was in the parent company's WaMu bank accounts when the thrift was taken over.

"What it's attempting to do in these Chapter 11 cases is really muddy the waters, dictate the schedule, the agenda," he said.

J.P. Morgan attorney Stacey R. Friedman, who is with the law firm of Sullivan & Cromwell, denied wanting to delay action involving WaMu or the $4 billion worth of deposits that are now under J.P. Morgan's control.

Thomas Califano, a lawyer at DLA Piper who's representing the FDIC, said Wednesday the agency wants the Delaware bankruptcy court to hold up action so that everything can be heard by a federal court in Washington.

Write to Peg Brickley at [e-mail]



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