Ad Hoc Committees Owe Fiduciary Duties? WaMu Threatens to Turn a Molehill Into a Mountain


Much has already been written about the "insider trading" aspects of Judge Walrath's September 13 Opinion denying confirmation of WaMu's Chapter 11 plan of reorganization (the Opinion can be found here). In a nutshell, Judge Walrath expressed the view that a person in possession of MNPI (material non-public information) could be considered to be engaged in insider trading even after the MNPI restriction period ends.

While that part of the Opinion is certainly a blockbuster, we are focusing here on a different aspect of the Opinion, namely Judge Walrath's view that members of an ad hoc committee can be considered to owe fiduciary duties to other creditors holding the same class of securities. Yikes! The first time she said this, we noted her comments in "The WaMu Double Whammy," which can be found here. We repeat now what we said then, which is that this is a frightening conclusion. Except then, Judge Walrath's comments were more speculative. In her latest Opinion, although still dicta, all speculation is laid to rest.

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