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The shareholders of Washington Mutual Inc. (the bankrupt parent of WaMu Bank) got to taste the thrill of victory last June, when Delaware federal bankruptcy court judge Mary Walrath appointed an examiner to investigate the equity committee’s claims that WaMu’s lawyers from Weil, Gotshal & Manges and Quinn Emanuel Urquhart & Sullivan may have left money on the table in reaching a settlement with the Federal Depositors Insurance Corporation and JPMorgan Chase. The since-sweetened $7 billion settlement essentially made WMI’s creditors whole and gave most bondholders between 70 and 80 percent of their claims–but it left shareholders out of the money. And that’s where they should stay, according to a 369-page report filed late Monday by WMI examiner Joshua Hochberg of McKenna Long & Aldridge. (The report is in two parts, here and here.) “The examiner concludes that the proposed settlement reasonably resolves contentious issues,” Hochberg wrote. “The examiner finds that the consideration to be paid to [WMI] in connection with the settlement in the form of assets or releases to the debtors is reasonable, and the estates are receiving good value for their released claims.” Any additional litigation against the FDIC or JPMorgan, Hochberg concluded, is unlikely to result in a recovery for WMI shareholders, and would certainly upend the proposed settlement, to the detriment of creditors and bondholders. The shareholders, represented by Susman Godfrey, had argued that WMI and its lawyers might not have conducted adequate investigation before agreeing to a settlement with JPMorgan, which acquired WaMu Bank from the FDIC at a fire-sale price in 2008. But after a three-month investigation, the examiner found that WMI special litigation counsel from Quinn Emanuel had undertaken “both expansive and thorough” research and “identified most of the possible claims of potential value to the estates.” Hochberg concluded that WMI’s lawyers had conducted “a thorough investigation of the potential claims against JPMC.” David Elsberg of Quinn Emanuel told us in an e-mail statement that Hochberg’s findings echo what WMI has said all along. “The examiner’s report is consistent with debtors’ view that the global settlement is in the best interests of the estates,” Elsberg’s statement says. “The examiner found that the debtors undertook a thorough investigation of potential claims. And, in view of the billions of dollars of value being provided to the estates under the global settlement, it is not surprising that the examiner also found that the consideration to be paid to the estates is reasonable and that the estates are receiving good value for their released claims.” Equity committee counsel Justin Nelson of Susman Godfrey declined comment on Hochberg’s report. WMI bankruptcy counsel Brian Rosen of Weil Gotshal didn’t return our call; neither did Hochberg. The examiner also concluded that the former holders of $4 billion in certain trust preferred securities will have a tough time proving that WMI improperly transferred the securities to JPMorgan instead of converting them to preferred shares in WMI. Hochberg found “significant arguments” that the securities were automatically conveyed to WMI, and concluded it was “unlikely WMI could avoid or set aside” the transfer of the securities. The trust preferred securities holders are represented by Brown Rudnick. Judge Walrath has already approved the disclosure statement for WMI’s proposed reorganization plan. Both the trial of the trust preferred securities holders’ claims and the plan confirmation hearing are scheduled for Dec. 1. Equity holders may still oppose confirmation of the reorganization plan. They also, as we’ve reported, have a pending securities class action against WMI directors, officers, and advisers. Class certification in that case was granted last month.

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