Anchor Litigation Asset "Horse Trading" Timeline
Professor Steinberg began going down this road at the first confirmation hearing but just kept getting stonewalled with witnesses that couldn’t seem to remember anything while on the stand. He followed up on this line of questioning today. To say that Goulding, Kosturos et. al couldn’t remember anything (now or in the past) about how or why the Goodwill Litigation was divvied up is quite convenient and perhaps disingenuous given the level of detail in the timeline below. In going back and listening to the old audio archives it was amusing to listen to Goulding and Kosturos play “Hot Potato” with respect to the settlement negotiations and other discussions (or lack thereof) regarding the LTWs. Goulding was previously asked questions along this front and he basically said "You’ll have to talk to Bill (Kosturos), he handled all of that” and then Kosturos would in turn say “Jonathan was the one handling that”. When all else fails, they just resorted to attorney client privilege, “you’re asking me to draw a legal conclusion”, “it was a holistic approach” or the newest one introduced by Chamberlain which was “Totality”.
Now to the timeline. Based upon a reading of the EC’s Post Hearing Brief [D.E. #8492], it is abundantly clear that the Goodwill Litigation was a key component and a great source of contention in the settlement negotiations as outlined below (outlining only the portion related to the Goodwill Litigation). Keep in mind that until the March 4, 2010, the public was unaware of how the Goodwill Litigation assets were to be treated:
o March 13, 2009: WMI submits settlement proposal to JPMC, all Goodwill Litigation Assets were to go 100% to WMI;
o March 18, 2009: JPMC responds with a proposal that it retain all Goodwill Litigation Assets except for $15 million (no further details provided);
o April 16, 2009: WMI responds by proposing that WMI should receive the proceeds of the American Saving litigation and JPMC would receive the first $55 million from the Anchor Litigation and splitting all additional proceeds 50/50;
o April 26, 2009: JPMC responds and offers no change from its March 18, 2009 proposal with respect to the Goodwill Litigation;
o July 29, 2009: Appaloosa & Centerbridge meet with JPMC and make further counterproposals to JPMC including that WMI receive all of the American Savings goodwill litigation and that JPMC receive the Anchor Savings goodwill litigation;
This is the first time that the Anchor Litigation goes exclusively to JPMC and curiously it occurs when the SNHs and JPMC negotiate without WMI present.
o August 18, 2009: by email, JPMC agrees to the proposal that WMI receive all of the American Savings goodwill litigation and that JPMC receive the Anchor Savings goodwill litigation;
o In mid-September 2009, Appaloosa and Centerbridge and their counsel met with Mr. Kosturos and informed him of the offer they had made to JPMC and of JPMC’s counteroffer;
o November 20, 2009,: Kosturos, WMI’s CRO sends a draft proposal to Centerbridge and Appaloosa to later send to JPMC. With respect to the Goodwill Litigation, it proposed that 100% of American Savings proceeds be allocated to WMI and that 100% of Anchor Savings proceeds go to JPMC.
o November 23, 2009: the SNHs attended another meeting with the Debtors at Weil for the purpose of formulating a further settlement proposal to JPMC; at that meeting, they received a draft of a further settlement offer that the Debtors proposed to give JPMC. (Tr. 7/18 at 106) It was identical to the one that Kosturos had sent Appaloosa and Centerbridge on November 20 with respect to the Goodwill litigation;
o November 30, 2009: JPMC responded proposing that the American Savings goodwill litigation proceeds be conveyed to itself;
o December 8, 2009: WMI responds by insisting that it take the American Savings piece and JPMC taking the Anchor Savings piece;
o The SNHs’ involvement in the settlement process during December 2009 didn’t end with the Debtors’ transmission of their December 8 proposal to JPMC. On December 11, Kosturos e-mailed JPMC’s Don McCree and stated as follows:
“I spoke to my major creditors and they are unwilling at this point to give up the VISA shares and the American Savings litigation. Their agreement to proceed with my previous offer was based on keeping those assets and they feel that if they give them up WMI will not have the votes to confirm a Plan of Reorganization. I will continue to talk to them this weekend, but I’m not confident that I will be able to sway them from their positions.”
At a minimum, this e-mail suggests that Kosturos and McCree had discussed the SNH/Debtors’ proposal of December 8, that JPMC had pushed back on the ownership of Visa shares and American Savings Goodwill litigation, but that the Debtors’ proposed split of the Tax Refunds had not been controversial.
o January 12, 2010: JPMC accepted the Debtors’ proposal for splitting the Goodwill Litigation as WMI proposed on December 8, 2009;
o March 4, 2010: Brian Rosen announces the Global Settlement Agreement publicly in court which provided that 100% of American Savings proceeds be allocated to WMI and that 100% of Anchor Savings proceeds go to JPMC.
o The rest is history…
The question here is why would the SNHs (and the Debtors who now exist only to do their bidding and apparently have no thoughts or direction of their own due to the blocking positions held by the SNHs) be so adamant about keeping the American Savings litigation while being so willing to transfer away a much larger (larger by 5x or more) litigation asset in the form of Anchor? The answer is because they knew that ultimately only 15% of Anchor actually belonged to the estate and that if they kept the Anchor Litigation asset inside WMI’s estate, they would have a much more difficult time expunging the obligation owed to the LTW holders. It was much easier and much more profitable to breach an ambiguous contract either by overt action or oversight and transfer away something that belongs to someone else.
The level of disenfranchisement that LTW Holders have endured throughout these Chapter 11 Cases at the hands of the Debtors and the Board of Directors can only be described as “extraordinary”. More “extraordinary” yet are the windfall profits (approximately $337 million) that would improperly inure to the benefit of the other Creditors of the Estate if the Court allows the Debtors to expunge the claims of the LTW Holders. The above referenced windfall profits that would be delivered by the Debtors to the clients of the Unsecured Creditors Committee arise because of an impermissible “Double Dip” that results first from the Debtor having improperly transferred (for valuable consideration received in return), to JP Morgan Chase, the proceeds of the underlying Anchor Litigation, “Free and Clear” of the underlying obligations (liens, claims and encumbrances) owed to LTW Holders. Making this back-dated transfer via section 363 sale results in a benefit to the Debtors’ Estates and the Unsecured Creditors Committee’s clients in the amount of $337 million which was recognized by the Court as the proper amount at which to establish the Disputed Claims Reserve. The second leg of this "Double Dip” results from the cancellation of the underlying obligation that is owed to LTW Holders. This leg of the transaction completes the $337 million “windfall” to the Debtors Estates and the Unsecured Creditors Committee’s clients.
Stated another way, when the Debtors transferred the proceeds of the Anchor Litigation (an asset belonging 85% to LTW Holders and 15% to WMI) to a 3rd party, it transferred, for value, an 85% stake in an asset it did not own. When it went a step further and also attempted to expunge the underlying obligation to the LTW Holders it impermissibly created value for the Estates’ other Creditors out of thin air. All told, $337 million in value would be created by the Debtor for the benefit of the Unsecured Creditors Committee’s other clients (besides the LTW holders they refuse to recognize) by selling an asset that did not belong to them and then refusing to honor a liability that is, in fact, theirs to honor because of the contractual provisions of the Warrant Agreement that (1) preserve the essential intent and principles of the agreement and (2) protect the rights and claims of the LTW holders.
