Shareholders of bankrupt Washington Mutual Inc asked a federal judge for permission to investigate JPMorgan Chase & Co for its role in the failure of Washington Mutual Bank, according to court documents filed on Tuesday.
The equity committee wants information that could lead to potential claims against JPMorgan if they can show that the investment bank had a role in the bank's failure, the largest in U.S. history.
Washington Mutual Bank was seized in September 2008 during a bank run at the height of the financial panic. The Federal Deposit Insurance Corp sold the bank immediately after it was seized to JPMorgan for $1.9 billion.
The shareholders are seeking to pick up where Washington Mutual left off. The holding company was locked in a battle for documents and depositions from JPMorgan when it reached a settlement now at the heart of the company's proposed reorganization.
The proposed plan leaves nothing for shareholders and distributes around $7 billion to creditors. It also provides a range of liability releases.
Shareholders have estimated the company may have assets worth up to $20 billion when factoring in potential legal claims.
An attorney for shareholders told the judge earlier this month that there were multibillion-dollar claims against JPMorgan for causing the bankruptcy.
Shareholders focused their investigation request on what it said was an untapped source of information -- the pre-seizure business records of Washington Mutual Inc, or WMI, and its bank.
JPMorgan took control of those documents when it bought the seized bank.
Shareholders said those records could contain information about JPMorgan's supposed interest in Washington Mutual Bank prior to its seizure and intelligence about market rumors concerning WMI's financial condition that JPMC (JPMorgan) may have had a hand in generating.
Shareholders made similar arguments earlier this month when they argued for a court-appointed examiner to investigate many of the same issues.
Judge Mary Walrath denied that request because she said the bank failure had been widely investigated. However, she also said the equity committee could conduct its own investigation.
The shareholders also want to investigate the circumstances that led to the settlement between the company and JPMorgan.
JPMorgan declined to comment, as did Washington Mutual.
Shares of Washington Mutual rose 2.7 percent to close at 11.3 cents in pink sheet trading on Tuesday.
The case is In re Washington Mutual Inc, U.S. Bankruptcy Court, District of Delaware (Wilmington), No. 08-12229.
(Reporting by Tom Hals; Editing by Tim Dobbyn)