THE OFFICIAL COMMITTEE OF EQUITY SECURITY HOLDERS'
OPPOSITION TO THE MOTIONS FOR LEAVE TO APPEAL FILED BY
AURELIUS CAPITAL MANAGEMENT L.P., THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS, APPALOOSA MANAGEMENT L.P.,
CENTERBRIDGE PARTNERS, L.P. AND OWL CREEK ASSET
MANAGEMENT, L.P. AND THE JOINDER FILED BY THE DEBTORS
http://www.kccllc.net/documents/0812229/0812229111014000000000005.pdfTwo observations from the first few pages
1. In the limited discovery afforded to EC, only limited trading data was provided, the last few days' board threads focussing on tradind volume activities and its analysis are much more meaningful.
2. Foot note on the bottom of page 8 reads that as of October 5, 2010 SNH have not disclosed full amount of of their current holdings of WMI securities. HMMM
BTW, Did the foot note meant Oct 5, 2011? typing error?
When referring to Noteholders, the term "atleast four of the noteholders aka the settling..." gives credence to possibility that doubt remains that others were involved too-hello ..
"This information was so obviously material that any investor, particularly a sophisticated player in the distressed debt markets, who claims otherwise raises serious doubts about his or her credibility."
p. 28
"This policy guidance (which tracks the securities laws) not only demonstrates that the SNH understood the significance of the non-public information they had, it calls into question the credibility of their witnesses at the evidentiary hearing, each of whom disclaimed the materiality of the JPMC negotiations because the terms were not finalized. This dubious testimony is itself further evidence that the SNH not only did something wrong, they knew it and are now trying to excuse or cover it up. (See Opinion at 137 (finding the SNH's testimony that their attorneys were not sharing confidential information about settlement talks lacking in credibility))."
p. 29
"This argument misses the point that it is not the Debtors' professionals who are the victims of the deception at issue, but other WMI securities holders."
P. 30
I would like to see extension of this idea that it is the Debtor's professionals that share in making the WMI securities holders' victims.
"By insisting that they are insulated, as a matter of law, from scrutiny for insider trading, the SNH seek absolute protection for a business model based on their ability to obtain confidential information from a debtor and then trade in a less well-informed market. Arbitrage of this information gap unquestionably violates the intent of the securities laws and constitutes an inequitable abuse of the bankruptcy process, as commentators have warned."
p. 33,34.
Yeah, that's pretty much exactly what insider trading is.
Page 7 During those negotiations, which led to a $6 bilion settlement for
the Estates within one year, JPMC made a series of ever-increasing offers that would
have made several classes of the Debtors' securities whole. The content of these
negotiations were never publicly disclosed. While in possession of this confidential
information, the SNH acquired tens of milions of dollars worth of WMI securities in the
public bond markets.
I like this line from p. 29:
"Contrary to the alarist rhetoric in the SNH's briefs, the Bankruptcy Court's Opinion in this case is not a threat to the integrty of the bankruptcy system; it is instead a substantial step in the direction of restoring that integrity."
(PDF pg 17):
"In describing the equitable disallowance remedy in Pepper, the
Supreme Court explicitly found that where an insider is guilty of a "violation of rules of
fair play and good conscience," that may be a "sufficient consideration" to invoke equity
to disallow the insider's claims. 308 U.S. at 311. In reaching that conclusion, the Court
noted that a fiduciary "canot utilize his inside information and his strategic position for
his own preferment." Id. That is exactly what happened here."
EXACTLY.
Even if this course of conduct did not constitute a "colorable" violation of the federal securities laws - and it does, as explained more fully below - it is unquestionably a "colorable" abuse of the bankptcy process about which the Banptcy Court was justifiably concerned. Inequitable conduct is not confined to conduct that constitutes a federal crime. If, as suggested by these facts, certain powerful creditors have been able to exploit confidential information they obtained in the bankptcy to take advantage of other less-powerful, and less-well-informed, parties-in-interest, and if the Debtors' own professionals were complicit in the scheme that allowed this to happen, there is no doubt that a remedy punishing the wrongdoers is a legitimate exercise of the Bankptcy Court's equitable authority. See, e.g., Pepper, 308 U.S. at 311; Citicorp, 160 F.3d at 991; In re Papercraft, 253 B.R. 385.
Amen.
Thank you SG, MW, and EC (current and former members).
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