"Deconstructing WaMu: Managing Insider Trading Risks as an Ad Hoc Committee Member" by Michael Mann and Scott Budlong

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January 6, 2012

The recent, unexpected rejection by a U.S. Bankruptcy Court of the modified plan of reorganization of Washington Mutual, Inc. on the ground of a “colorable claim” of insider trading has raised questions about the standards of conduct for members of ad hoc creditors committees during corporate reorganizations. Some commentators have suggested that the WaMu opinion stakes out significant new legal ground and will render service on ad hoc committees untenably risky.  

In this memorandum, Richards Kibbe & Orbe LLP attorneys Michael D. Mann, and Scott C. Budlong, partners in the firm’s Regulation and Compliance practice, explain that, while the language of WaMu is provocative, the analysis offered is not particularly groundbreaking.  They deconstruct the opinion, yielding an approach to analyzing duties, materiality, nonpublic information, and the ability to trade that can be constructively applied by ad hoc committee members determined to avoid the type of attention paid to the noteholders who participated in the WaMu ad hoc committee.   

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