While we are in the eye of the hurricane ... I have been looking at the post trial pleadings and have some questions and observations that I hope clarify where we are at:
In no particular order, first: If we win the equity v. claim debate and the LTWs are considered a debt-type claim, then would we still be out of the money if the claim is subordinated under Section 510(b) and relegated to Class 18?
Doesn't the argument that 510(b) subordination does not apply really derive from the language of the subordination provision itself and its underlying purpose?
That is, the provision requires that there be a "purchase or sale of such a security," in this case a debt security, and that the claim is for damages arising from that transaction? Here, the "debt security" ostensibly is the claim for 85% of the goodwill litigation recovery, which was initially deemed payable in equity securities of DIME and then WAMU. In other words, it is the warrant itself. The warrants did not go to the original holders as a result of the purchase of anything but rather as a dividend, so the triggering language of the subordination provision does not apply. (I understand this to be Steinberg's first argument.)
The other argument is that the claims here are not the type that fall within the underlying purpose of the subordination provision: These are not dressed up securities fraud claims, where equity holders are trying to circumvent the bankruptcy priority scheme that would otherwise leave them out of the money. I am not sure that I understand this argument in the context of a debt security, which is our context. Can someone better articulate it?
Also, I glanced at the cases cited by both sides and there did not seem to be one that really covered our situtaion. To me, the closest hypothetical case would be one where cash dividend payment were about to be made before the filing of a bankruptcy petition, so that the dividend had been declared and the pot of cash was waiting to be emptied but the bankruptcy proceedings ensued.
I am long and so would be more than happy to know that there is a fairly convincing set of arguments showing that -- even if we win the equity v. claim battle - we won't lose because of subordination.
Thanks in advance for your thoughts.
