http://wmish.com/docs/815/8491.pdf
PRELIMINARY STATEMENT
2. The evidence admitted at the Plan confirmation Hearing in July demonstrates that the Plan should not be confirmed. That evidence permitted a rare look behind the curtain at the
details of how a bankruptcy plan came into existence.
In this case, it was the product of a disturbing process that operated, with the knowledge and complicity of the Debtors, for the benefit of a favored few – four powerful hedge fund managers who played pivotal roles in orchestrating both the Global Settlement Agreement and the Plan, and who, with the Debtors’ express permission via the terms of confidentiality agreements, were enabled to engage in trading while in possession of non-public information about the details of settlement negotiations over disputed claims worth many billions of dollars. Indeed, it is undisputed that all four of these creditors traded while in possession of details about the settlement negotiations that were unknown to the public. The only issue is whether that information was “material” – and it clearly was.
3. While giving lip service to the goal and the duty to advance the interests of all, the
Debtors in fact abandoned the interests of WMI’s shareholders, allowing these key creditors, who had amassed blocking positions in impaired classes of junior debt, to drive the settlement negotiations far enough to achieve the returns they sought on those securities, but not far enough {00545965;v1} 2
to achieve a recovery for equity. Striving for such a recovery in fact would have been antithetical to the interests of these creditors, and it is evident that the Debtors’ only goal was to achieve a Plan that they would support, thereby assuring a speedy confirmation.
SUMMARY OF THE EVIDENCE
5. In the following section, the Equity Committee summarizes the evidence admitted
at the Plan Confirmation Hearing relevant to the allegations of insider trading, inequitable
conduct, and the Debtors’ bad faith in proposing the Plan. Additional evidence bearing on these issues and evidence relevant to the Equity Committee’s other objections to plan confirmation will be discussed in the Argument section of this brief.2
A. BACKGROUND ABOUT THE FOUR SETTLEMENT NOTE HOLDERS
6. The allegations of insider trading focus on the conduct of four hedge-fund managers, sometimes referred to as the Settlement Note Holders (“SNHs”) because they were all
originally parties to the Global Settlement Agreement.
7. Aurelius Capital Management, LP (“Aurelius”) is a company that manages three
funds; its primary focus is to invest in “distressed debt”, acquiring the bonds of bankrupt companies and then involving itself in the bankruptcy process in order to “make sure the rights of those particular bonds is respected,” i.e., to seek a profitable return on the investments. (Tr. 7/18 at 38, 124) The firm’s senior partner, and the individual responsible for making Aurelius’ investment decisions, is a former corporate and bankruptcy attorney named Mark Brodsky. (Id.
at 38, 42.) Dan Gropper, who testified at the hearing, is a managing director of the firm and
2 Exhibits admitted at the plan confirmation hearing are cited by exhibit number and transcript excerpts by the abbreviation “Tr.”, followed by the date and page number.
{00545965;v1} 3 typically becomes involved in the bankruptcy and restructuring process as the firm’s representative, dealing with outside counsel and other interested parties. (Id. at 38-39.)
8. Owl Creek Asset Management, L.P. (“Owl Creek”) is an investment fund manager whose strategy includes acquiring the securities of bankrupt companies. (7/19 Tr. at 118.) The firm’s “lead principle” and portfolio manager is Jeff Altman. (Id. at 120.) Daniel
Krueger, who testified at the hearing, is a managing director of the firm and one of three assistant portfolio managers; he was the portfolio manager responsible for Owl Creek’s investment in WMI securities. (Id. at 115-16, 120, 149.)
9. Appaloosa Management LP (“Appaloosa”) is a manager of four hedge funds. (Tr. 7/20 at 38.) Jim Bolin, who testified on behalf of Appaloosa at the hearing, is the senior partner
and portfolio manager. (Tr. 7/20 at 38.) David Tepper controls the general partner of Appaloosa and he and Bolin were the persons responsible for making decisions relating to Appaloosa’s investments in WMI securities. (Tr. 7/20 at 40.)
10. Centerbridge Partners, L.P. (“Centerbridge”) also manages hedge funds. Jeff
Aronson is the founder of the firm, and Vivek Melwani, who testified at the hearing, holds the title of senor managing director, though he did not become a partner of the firm until March 2011. (Tr. 7/20 at 212, 213, 214.) Before joining Centerbridge, he was a bankruptcy partner in the Fried Frank law firm, where he worked for 13 years. (Id. at 213.)
