Large Green,
It is my observation that the presiding judge (Walrath) has been getting a bum rap by posters because she did not do what they wanted. The truth is what they wanted had nothing to do with the outcome of the bankruptcy. She actually followed the rules of bankruptcy without wavering from the correct course, which included the threat of invoking "Equitable Disallowance" on several hedge funds.
One of my previous posts to you reposted:
If the EC had decided to file charges of insider trading against the ‘colorable’ Hedge Funds, they would have filed the charge in a different court other than the bankruptcy court, which did not have jurisdiction. However, the BK court would have had to give its permission. The Hedge Funds in question had less fear of insider trading charges than the threat of The Honorable Judge Mary Walrath to invoke ‘Equitable Disallowance’. This tactic meant the court would assign ANYTHING OF VALUE due to these Hedge Funds to Equity, leaving the Hedge Funds with NOTHING that might make it to the waterfall. Because the result of this tactic would have caused a lengthy fight (years) by all parties, the debtors, the creditors, and the EC came to a settlement.
When judging the conduct of the presiding judge in the WMI bankruptcy case, you need know only one thing. In accordance with the written laws and rules that govern bankruptcies, the job of the judge was to REFEREE and GUIDE the debtors, the creditors and the EC into a final bankruptcy exit plan, which they were to negotiate and agree upon amongst themselves. Whatever they agreed to, the judge would agree to (within reason), including cancelling equity. In no way do the rules require the presiding judge to represent the best interests of the debtors, the creditors, or equity. During this process, the creditors want as much as possible, equity wants as much as possible, and the debtors want the creditors and equity canceled. The presiding judge is required to referee and guide how these three groups come to agreement, not what the agreement contains.
The settlement came about because the debtors, the creditors, and the EC got as much as each group could get without prolonging the bankruptcy and without losing a great deal of money (the NOLs). The debtors wanted to distance themselves from the questionable conduct of WMI executives and the many ongoing lawsuits as regards the mismanagement of the mortgages, and they wanted the new company started within a timeframe which could capture as much of the NOLs as possible.
The (insider trading) creditors agreed to accept the settlement in order to (1) be part of the owners and managers of the new company, (2) to avoid ‘Equitable Disallowance’, and (3) to avoid insider trading charges, which the EC and Susman Godfrey and Partners could make in a different court.
Best regards,
David West
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