Washington Mutual Settlement: Some Shareholders Get Nothing!Reader comment on: FDIC WaMu Lawsuit Submitted by WeissRatings.com (United States), Apr 9, 2012 16:14 Washington Mutual Settlement: Some Shareholders Get Nothing! by P. Skoran, WeissRatings.com Do you have any common shares in the holding company Washington Mutual, Inc. (WMI) that owned Washington Mutual Bank (WaMu)? Its three-and-a-half-year-old bankruptcy case came to a close on March 7, 2012. And if you are one of the 60% of shareholders who will get a piece of the settlement, you have something to be happy about. But if you are one of 40% of common shareholders who won't get anything, you may be wondering "what happened?" Washington Mutual Bank was placed into a Federal Deposit Insurance Corporation (FDIC) receivership on September 25, 2008, and immediately sold to JPMorgan Chase (JPM) for $1.9 billion. Any stock ownership interests in WaMu bank were rendered worthless by the FDIC receivership. But the morning after WaMu bank was sold, its parent holding company, WMI, filed for Chapter 11 bankruptcy protection in Delaware. WMI ended up with three different stocks, including common shares that continued to trade on the so-called "pink sheets" under the symbol WAMUQ.PK after being delisted from the New York Exchange. Then there was a ballot process early this year. Shareholders who voted for the settlement, signed the required release, and mailed it back in a timely fashion, will get a share of the $140 million reinsurance company that will exist after the bankruptcy. About 60% of the common shareholders did just that, according to one of the attorneys involved. The remaining 40% get nothing. It Was Easy to Miss The WMI settlement ballot envelope didn't have any indication that the material was time sensitive. So unless you were really familiar with the bankruptcy process or had been following it day-to-day, you may not have known that your participation was critical to retain your rights. And if your ballot didn't get submitted, you won't share in the settlement. Plus it wouldn't be surprising if you assumed shareholders wouldn't get anything from the settlement. There weren't any mailings to clue you in. And if you tried to ask transfer agents, the FDIC, or lawyers associated with pending class actions, most likely you wouldn't have gotten the information. To sum it up: Maybe you weren't paying as much attention as you should have when that envelope arrived. What's more, if you opened the envelope, you found a hefty sheaf of legal paperwork with a return deadline of February 28. That means you had a little more than a month to read it, or have your attorney take a look, make a decision and return it. It Was Easy to Make False Assumptions Perhaps you thought there were laws to protect your shareholder interest and require that you get the same deal as all the other shareholders. Well you were wrong. Perhaps you thought you were entitled to clear communications of status, or at the very least, some "red flag" letting you know your participation in the ballot process was critical to retaining your interest. After all, if you don't vote your proxy every year, you still retain your equity interest. So without some direction, there would be no reason to think you had to participate in the bankruptcy settlement vote to retain your rights. Or perhaps you simply thought it was a done deal for shareholders when the case hit the bankruptcy court. Tough lesson — now you know it's not over, 'til it's over. Or if you thought, gee it took the court three years to get to a potential settlement, surely I'll have clear notice and sufficient time — you'd be wrong again. One attorney involved told us that shareholders should have been following a special website, watching Washington Mutual message boards at Yahoo.com/finance, and reading press releases. Through those communications and the ballot mailing, the attorney said 60% of shareholders responded to the ballot. According to him, that's a lot, therefore he thinks they did everything just the way they should have. Well then ... The System Is Obviously Broken! With 40% of the shareholders missing the action, it seems pretty clear that relying on press releases doesn't assure that information gets to people who need to know. It's also pretty clear that having a website doesn't make information available to everyone, especially those who are older or less than tech savvy. Expecting shareholders to know the right internet search words, the right official website or expecting them to continually follow the bankruptcy negotiations can't possibly be the right way to make sure all shareholders are going to get a fair shake — especially when their investment dollars are at stake. You would think that the Bankruptcy Court would have questioned why 40% of shareholders won't get anything back for their investment, while a whole lot of others will. In fact, a Court settlement where no shareholders receive a settlement might have been a lot fairer than the one that was approved. There was an Official Equity Committee that apparently played a part. And that brings up some important questions:
Some shareholders didn't know that an Official Equity Committee even existed until the ballot arrived with the Committee's recommendation that shareholders vote in favor of the settlement. If the decision was approved by shareholders who were closely involved (perhaps participants of the Official Equity Committee), those folks would get a bigger share of the settlement if fewer shareholders were involved. That makes us wonder what their motive was for accepting such a short approval deadline. And wasn't just the mere perception of that possible motive reason enough to require another attempt at contacting the remaining shareholders or changing the way their interests would be handled? After all, shareholders often receive several telephone calls when company management needs votes to pass an initiative — why shouldn't they have gotten that same treatment in this circumstance? Why wasn't it possible for all shareholders to get the same deal? It was, if only someone had been thinking about them. If a majority of shareholders accepted the settlement and the release, as approximately 60% did, all shareholders should get their share of the agreed settlement, unless they took specific action to opt out. Shareholders accepting shares in the new entity would be subject to the release as agreed by those who participated in the ballot. That's the way it's often done with class actions. All these securities attorneys are well aware of that, so you have to wonder whose interests were being served by not doing that. By having to opt out, rather than in, everyone who started with equity would end with an interest, unless they specifically chose otherwise. Instead, in this case, only those with the time and capacity to get intimately involved in the proceedings and meet the short deadline will benefit. The rest of the WMI shareholders? Well, they lost their fair share of a $140 million reinsurance company — the only unit of WMI that will emerge from bankruptcy. What You Can Do Now ... It's probably too late for the WMI settlement to be adjusted to include all common shareholders, although, astute lawyers might jump into the fracas to try and save them. In any case, the WMI calamity is proof positive why you need to keep on top of your investments, as well as the financial institutions you deal with. Note: Comments are moderated by the editor and are subject to editing. Other reader comments on this item
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