Washington Mutual Inc reached an agreement on Friday that would give shareholders control of the company after it exits bankruptcy, according to a report by Bloomberg News.

Brian Rosen, of Weil, Gotshal & Manges LLP which represents Washington Mutual, said: There were ongoing discussions. Nothing official.

In return for control, shareholders would drop allegations that four hedge funds holding billions of dollars of Washington Mutual debt used nonpublic information while trading in its debt during the bankruptcy, according to Bloomberg.

A company spokesman declined to comment. Attorneys who represent shareholders and the hedge funds did not return calls for comment.

Washington Mutual plans to reorganize around a mortgage reinsurance business when it exits bankruptcy, mostly as a way to preserve the value of potential tax breaks.

The company filed for bankruptcy in September 2008, a day after regulators seized its WaMu lending business in the biggest bank failure in U.S. history.

It proposed a plan of reorganization last year that was rejected by Delaware Bankruptcy Judge Mary Walrath. Among her concerns were allegations raised by an individual investor from New Jersey, Nate Thoma, about four hedge funds that helped craft the company's bankruptcy plan.

Thoma accused Appaloosa Management LP, Centerbridge Partners LP, Owl Creek Asset Management LP and Aurelius Capital Management LP of using information gleaned from the negotiating table to cash in on debt trades.

The funds have denied the allegations.

Shareholders have jumped on Thoma's allegations as an avenue of attack on a revised bankruptcy plan. They have scheduled and postponed depositions of the funds several times.

The company's proposed plan would distribute more than $7 billion to creditors, paying them in full, but leaving little for shareholders.

Shareholders have long argued the bank was improperly seized and sold too cheaply by the Federal Deposit Insurance Corp to JPMorgan Chase & Co for $1.88 billion.

The company's preferred shares more than doubled during pink sheet trading, reaching a high of $38, and finished up about 87 percent, or $13.92, at $30. Common shares rose 91 percent to 7.9 cents in pink sheet trading.

The case is In re Washington Mutual, U.S. Bankruptcy Court, District of Delaware, No. 08-12229.

(Reporting by Tom Hals; editing by Andre Grenon)