Docket #9321 Date Filed: 1/4/2012

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ____________________________________ ) Chapter 11 In re: ) ) Case No. 08-12229 (MFW) WASHINGTON MUTUAL, INC., et al., ) Jointly Administered ) Objection Deadline: January 4, 2012 @ 4:00 p.m. Debtors ) Hearing Date: January 11, 2012 @ 2:00 p.m. ____________________________________) Related Docket Nos. 9178, 9179, 9180 & 9181 OBJECTION OF THE CONSORTIUM OF TRUST PREFERRED SECURITY HOLDERS TO DEBTORS MOTION FOR APPROVAL OF DISCLOSURE STATEMENT FOR THE JOINT PLAN OF AFFILIATED DEBTORS PURSUANT TO CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE The consortium of holders of interests (the TPS Consortium) denominated by the above-captioned Debtors as the REIT Series and subject to treatment under Class 19 of the Seventh Amended Joint Plan of liquidation (the Plan) [Docket No. 9178], by and through undersigned counsel, hereby files this objection (the Objection) to the Debtors Motion (the Motion) for an Order, Pursuant to Sections 105, 502, 1125, 1126 and 1128 of the Bankruptcy Code and Bankruptcy Rules 2002, 3003, 3017, 3018, 3019, 3020 and 9006, (i) Approving the Proposed Disclosure Statement (the Disclosure Statement) [Docket No. 9179] and the Form and Manner of the Notice of the Proposed Disclosure Statement Hearing, (ii) Establishing Solicitation and Voting Procedures, (iii) Scheduling a Confirmation Hearing, and (iv) Establishing Notice and Objection Procedures for Confirmation of the Debtors Seventh Amended Plan [Docket No. 9181].1 respectfully represents as follows: In support of this Objection, the TPS Consortium

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1

Capitalized terms not otherwise defined herein shall bear the meanings ascribed thereto in the Plan and/or Disclosure Statement, as applicable.

0q6=,!$ 1) 0812229120104000000000017

PRELIMINARY STATEMENT 1. This case continues to unfold like one of Shakespeares epic tragedies. The

Debtors have expended hundreds of millions of dollars in estate value otherwise distributable to creditors and shareholders, fighting bloody battles to stalemate against those same creditors and shareholders. The Debtors arrogantly demand time and again that the law bow to their deal, when legal principle should never bow to any deal. As a result, the global settlement purportedly so value accretive as to be the answer to all case ailments remains unconsummated nearly two years after the deal was struck. And, with the Debtors charging headlong towards confirmation proceedings on yet another deeply-flawed Plan, parties again gird for battle. 2. In September, the Court tried to change the case dynamic. Following denial of

the last version of the Plan, the parties were sent to judicial mediation to work towards a truly universal settlement. The TPS Consortium was not, however, included in any of the substantive discussions and, in fact, was asked to leave the premises after a few hours on the very first day. The latest deal was then struck around and in the absence of the TPS Consortium. Predictably, as the latest Plan is again structured upon the backs of the members of the TPS Consortium and similarly-situated parties, the TPS Consortium is vehemently opposed to confirmation. 3. The TPS Consortium respectfully submits that this cases tragic flaw lies not in

its size or complexity (this is, after all, merely a liquidation) but in the Debtors efforts to tamper and to artificially divert the natural flow of value. It is a foundational principle of

bankruptcy law that estate value is supposed to flow to those entitled to it under applicable state law. So, if members of the TPS Consortium do actually own the Trust Preferred Securities as ultimately determined by an appellate Court then they must receive that value. Otherwise, any

confirmation Order stripping them of that entitlement would, among other things, be a taking in violation of the Fifth Amendment of the Constitution. If the members of the TPS Consortium are determined by an appellate court to not own the Trust Preferred Securities, but instead to have rights similar to investors holding preferred stock of Washington Mutual, Inc., then the members of the TPS Consortium must receive their full liquidation preference before any common stock holder may receive one iota of value. Otherwise, the Plan would violate the absolute priority rule. And, either way, the members of the TPS Consortium cannot be deprived their natural recovery entitlements from the estate through death trap extortion for a release of JPMorgan (and, now, others seeking cover under the Plan for their potentially-wrongful conduct). That is a facial violation of the best interests test. 4. But, this Plan just like its predecessors does tamper and artificially divert

value. If the Debtors have their way, the TPS Consortium: (a) would lose all appellate rights respecting the Trust Preferred Securities ownership issue; (b) would lose all entitlement to an estate recovery if its members do not satisfy the death trap toll of the release for JPMorgan and others; and/or (c) if allowed to retain their entitlement to estate value, would be forced to share that value with common stockholders before applicable liquidation preferences are fully satisfied.2 The Plan remains facially unconfirmable. The Disclosure Statement should not be approved. We should avoid the next battle scene; instead, the parties should be sent back to mediation to actually work towards a truly universal settlement. 5. At the very least, if the carnage associated with yet another failed confirmation

hearing is not to be avoided, the Disclosure Statement and proposed solicitation procedures need ______________________
2

The TPS Consortium specifically disputes that any of the foregoing results would be permissible even if the Plan were to be confirmed, and will address such issues as necessary at the appropriate time(s). 3

substantial revision (including to clarify the ability of parties to vote against the Plan and not forfeit their recoveries). From the perspective of any preferred stockholder, this Plan is a value travesty. Why on earth would holders of preferred stock (or Trust Preferred Securities) ever vote to accept a Plan that so egregiously compromises their due entitlement to value, predominantly for the benefit of those accused of serious wrongdoing and holders of structurally-subordinate common stock? The only answer is that the Debtors hope that members of Class 19 will not know any better, and they have constructed a disclosure document that hides how ill-advised this deal is for the members of Class 19. Holders of preferred equity need clear, frank guidance as to the true import of this latest version of the Plan guidance they are absolutely not receiving from their purported fiduciary, the Official Equity Committee. To wit: the Plan deprives

members of Class 19 of their legal entitlements to value and, therefore, they should vote against the Plan. 6. At a minimum, should the Court overlook, for now, the Plans numerous

infirmities and allow solicitation of votes on that Plan, the TPS Consortium requests authority (as the Court has granted with respect to the prior two versions of the Plan allowed to be distributed for voting) to include in the solicitation packages sent to members of the TPS Consortiums class (however that Class may be constituted) a letter expressing the TPS Consortiums concerns regarding the Plan and its proposed treatment of similarly-situated investors. BACKGROUND A. 7. The Debtors Repeated Failures To Put Forth A Confirmable Plan. To the extent the Debtors are allowed to go forward with solicitation, this will

constitute the Debtors third attempt to obtain, over the objection of the TPS Consortium and

other Plan opponents, confirmation of the Plan (which itself has been amended and/or modified at least eight times). In connection with the prior two requests for authority to solicit Plan votes, the Debtors have argued repeatedly to this Court that issues pertaining to the confirmability of the then-proposed versions of the Plan should not be addressed at the Disclosure Statement stage and, instead, should be put off until the applicable confirmation hearings. As noted below, that approach (putting off until later that which could be addressed in advance) has now resulted in two contested confirmation hearings (with associated administrative costs in the tens of millions of dollars) and nearly two years in delay and the further accrual of postpetition interest. 8. More specifically, the following issues previously were raised at the Disclosure

Statement stage, deferred at the Debtors request, and then proved fatal to confirmation: Debtors Determination that Issue was Procedurally Improper and Premature as a Disclosure Statement Objection Response to Sixth Amended Disclosure Statement Objections,3 Exhibit B, at 6-7, 14, 23-24, 34, 54, 56, 57-58, 78, 80, 81, 82 and 84 Response to Supplemental Disclosure Statement Objections,4 Exhibit A, at 1, 11, 17 and 20 Non-consensual thirdparty releases (legality and/or scope) Response to Sixth Amended Disclosure Statement Objections, Exhibit B, at 16, 19, 38, 40, 43, 46-47, 49, 50, 54, 57, 64, 85, 87 January Opinion, at 60-87 (determining that the Plan could not be confirmed because it provides for impermissibly

Objection Raised by Creditor / Equity Holder Classification and/or treatment of claims within a class

Treatment in Opinions Denying Confirmation January Opinion,5 at 85-102 (determining that the Plan could not be confirmed because it improperly discriminates, inter alia, against certain PIERS and LTW Holders)

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3

See Docket No. 5613. See Docket No. 6963. See Docket No. 6528.

Objection Raised by Creditor / Equity Holder

Debtors Determination that Issue was Procedurally Improper and Premature as a Disclosure Statement Objection and 88 Response to Supplemental Disclosure Statement Objections, Exhibit A, at 3, 6-7, 16

Treatment in Opinions Denying Confirmation broad non-consensual thirdparty releases)

Rate of post-petition interest (Contract or FJR)

Response to Supplemental Disclosure Statement Objections, Exhibit A, at 4, 8, 10, 11, 12 and 29

September Opinion,6 at 74-85 (determining that the Plan could not be confirmed because it provides for payment of postpetition interest at the contract rate and not the FJR) January Opinion, at 98-99 (determining that the Plan miscalculated the value of WMMRC) September Opinion, at 43-63 (determining that the Plan (i) again miscalculated the value of WMMRC; and (ii) miscalculated the value of the Debtors tax attributes. January Opinion, at 87-89 (determining that the Plan could not be confirmed because certain provisions violated the absolute priority rule)

Valuation (Debtors assets and/or WMMRC)

Response to Sixth Amended Disclosure Statement Objections, Exhibit B, at 68 and 90 Response to Supplemental Disclosure Statement Objections, Exhibit A, at 9, 10, 19, 31 and 44

Absolute Priority Rule

Response to Sixth Amended Disclosure Statement Objections, Exhibit B, at 2, 5, 13-14,

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6

See Docket No. 8612. 6

Objection Raised by Creditor / Equity Holder Appointment of Liquidating Trustee

Debtors Determination that Issue was Procedurally Improper and Premature as a Disclosure Statement Objection Response to Supplemental Disclosure Statement Objections, Exhibit A, at 27

Treatment in Opinions Denying Confirmation January Opinion, at 107-08 (determining that a representative of equity holders should play a role in the Liquidation Trust) January Opinion, at 108-09 (determining that the Plan could not be confirmed because it provided for the payment of fees without Court approval)

Payment of certain creditors professional fees

Response to Sixth Amended Disclosure Statement Objections, Exhibit B, at 19

9.

In short, the Debtors have repeatedly chosen to force parties to protect their rights

against inappropriate Plan provisions at contested confirmation proceedings and to test this Courts mettle to appropriately deny confirmation in the face of the Debtors shouts of too big to fail and citations to the accruing costs resulting from their own brinksmanship strategies. The TPS Consortium expects the Debtors will employ the same strategy here, in hopes that the third time will be the charm and the Court will bow to their pressure tactics. ARGUMENT I. The Plan Described By The Disclosure Statement Remains Incapable Of Confirmation And, To Avoid Unnecessary Wastes Of Limited Estate Resources And Time, Authority To Solicit Acceptances Thereof Should Be Denied Until Confirmation-Related Deficiencies Are Remedied. 10. It is well-settled that a disclosure statement should not be approved where the

proposed plan is patently unconfirmable. See, e.g., In re Am. Capital Equip., Inc., 405 B.R. 415, 423 (Bankr. W.D. Pa. 2009) (finding that a Disclosure Statement must be rejected where it describes a facially unconfirmable plan); In re Quigley Co., 377 B.R. 110, 115-16 (Bankr. S.D.N.Y. 2007) (If the plan is patently unconfirmable on its face, the [motion] to approve the

disclosure statement must be denied, as solicitation of the vote would be futile.) (citations omitted); In re La Guardia Assocs., L.P., Nos. 04-34512 and 04-34514, 2006 WL 6601650, at *60 (Bankr. E.D. Pa. Sept. 13, 2006) (As a matter of law, it is well established that the Court should not approve a disclosure statement where the reorganization plan to which it relates is unconfirmable.) (citations omitted); In re Curtis Ctr. Ltd. Pship, 195 B.R. 631, 638 (Bankr. E.D. Pa. 1996) (holding that, because the Disclosure Statement improperly classified claims, the disclosure statement should be disapproved where the plan it describes is patently unconfirmable) (citations omitted); In re Filex, Inc., 116 B.R. 37, 41 (Bankr. S.D.N.Y. 1990) (A court approval of a disclosure statement for a plan which will not, nor can not, be confirmed by the Bankruptcy Court is a misleading and artificial charade which should not bear the imprimatur of the court.); In re Atlanta W. VI, 91 B.R. 620, 626-27 (Bankr. N.D. Ga. 1988) (declining to approve disclosure statement where, inter alia, certain provisions of disclosure statement, mirrored in the proposed plan, violated the absolute priority rule). 11. It is appropriate for a court to disapprove of a disclosure statement, even if it

properly summarizes and provides adequate information about a proposed plan, when a court is convinced that a plan could not possibly be confirmed because, inter alia, rejection of a disclosure statement would spare the expense of mailing a disclosure statement and preparing for and participating in a confirmation hearing which may be for naught. In re Monroe Well Serv., Inc., 80 B.R. 324, 332-33 (Bankr. E.D. Pa. 1987) (citations omitted); see La Guardia Assocs., 2006 WL 6601650, at *60 (explaining the purpose for this rule of law is to eliminate the wasteful and fruitless exercise of sending the disclosure statement to creditors and soliciting votes on a proposed plan, which cannot be confirmed); In re Phoenix Petroleum Co., 278 B.R. 385, 394 (Bankr. E.D. Pa. 2001) (describing the instances where it is appropriate to consider

issues at the disclosure statement hearing stage which could otherwise be raised at confirmation as those where the described plan is fatally flawed so that confirmation of a plan would not be possible); In re McCall, 44 B.R. 242, 243 (Bankr E.D. Pa. 1984) (deferring a disclosure statement objection until confirmation was improper where the disclosure statement accurately mirrors the purported deficiencies of a plan because doing so would merely delay the consideration of an inevitable objection at a cost to creditors). Indeed, allowing a plan

proponent to incur the attendant expense of soliciting votes on, and seeking Court approval of, a patently unconfirmable plan unduly delays consideration of inevitable plan objections and may ultimately compromise the potential for a successful reorganization. See In re Pecht, 57 B.R. 137, 139 (Bankr. E.D. Va. 1986). 12. As discussed below, the Plan, in its current form, remains incapable of

confirmation. Undoubtedly, the Debtors will file their omnibus response to objections to the Motion, and attempt to defer such issues until confirmation. Using the Debtors oft-recited burn rate of $30 million per month, the Debtors prior decisions to ignore patent Plan infirmities in hopes the Court would succumb to pressure at the confirmation hearing has now resulted in the unneeded incurrence of approximately $500 million in interest and expenses. The waste of a half a billion dollars certainly justifies denying the Debtors any benefit of the doubt and addressing prior to the allowance of solicitation the serious Plan flaws identified herein and, potentially, by other parties who object to the Motion. A. The Plan Is Incapable Of Confirmation Because It Is Premised Upon Relief This Court Has Been Divested Of Jurisdiction To Grant. As set forth more fully in the TPS Consortiums concurrently-pending motion to

13.

stay confirmation proceedings pending resolution of the TPS Litigation appeal [Docket No. 9260], the TPS Consortium believes this Court has been mandatorily and automatically divested

of jurisdiction to approve those portions of the Plan (and related global settlement agreement) intended by the Debtors to: (a) resolve issues currently on appeal; (b) affect the District Courts appellate jurisdiction; and/or (c) deprive the members of the TPS Consortium of their Constitutionally-protected due process and property rights. The TPS Consortium incorporates all such arguments by reference herein. 14. Absent modification of the Plan to preserve the issues currently on appeal before

Chief Judge Sleet and/or protect the TPS Consortiums appellate rights, the Plan remains incapable of confirmation and solicitation should not be allowed. B. The Plan Is Incapable Of Confirmation Because It Is Premised On Impermissible Gerrymandering. As set forth more fully in the TPS Consortiums concurrently-pending motion to

15.

determine the propriety of the proposed joint classification of the REIT Series with other issuances of preferred shares under the Plan [Docket No. 9257], the Plan is premised on the impermissible gerrymandering of former Classes 19 and 20 (as each was constituted under all prior versions of the Plan) in order to evade the dissenting vote of REIT Series holders and application of the absolute priority rule brought into play under Bankruptcy Code Section 1129(b)(2)(C). The TPS Consortium incorporates all such arguments by reference herein. 16. Absent modification of the Plan to separately classify the REIT Series, on the

one hand, and holders of other issuances of preferred equity, on the other hand, the Plan remains incapable of confirmation and solicitation should not be allowed. C. The Plan Is Incapable Of Confirmation Because It Is Premised Upon An Impermissible Deprivation Of Dissenting Stakeholders Rights To Distributions. A persisting feature of the Plan is the proposed withholding of distributions to

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parties who do not grant a full and comprehensive release of claims they may have, in their own

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right, against non-Debtor parties (e.g., JPMorgan, the AAOC Releasees, the FDIC, etc.). See Plan, 41.6. As a result of such treatment colloquially known as a death trap members of Class 19 (whether including REIT Series holders only or also including Preferred Equity Interests) who decline to give up their rights against non-Debtors will be deprived of their due entitlement to estate value that would otherwise flow to them by normal operation of the priority waterfall notwithstanding that holders of Preferred Equity Interests, Common Equity Interests and, potentially, junior Dime Warrant interests who grant the demanded releases would receive distributions (and, potentially, reallocations of the value otherwise owed to dissenting members of Class 19) under the Plan. 18. Bankruptcy Code Section 1123(a)(4) (made applicable to confirmation

proceedings via Bankruptcy Code Section 1129(a)(1)) requires that a plan provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to less favorable treatment of such particular claim or interest. 11 U.S.C. 1123(a)(4). [T]he most conspicuous inequality that [Bankruptcy Code Section] 1123(a)(4) prohibits is payment of different percentage settlements to co-class members. In re AOV Indus., Inc., 792 F.2d 1140, 1152 (D.C. Cir. 1986); see also ACC Bondholder Grp. v. Adelphia Commcns Corp. (In re Adelphia Commcns Corp.), 361 B.R. 337, 365 (S.D.N.Y. 2007) (Section 1123(a)(4) guarantees that each class member will be treated equally, regardless of how it votes on a proposed vote.); Finova Grp., Inc. v. BNP Paribas (In re Finova Grp., Inc.), 304 B.R. 630, 636 (D. Del. 2004) (holding that Bankruptcy Code Section 1123(a)(4) required all members of the same class to receive the same treatment); In re Modern Steel Treating Co., 130

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B.R. 60, 64 (Bankr. N.D. Ill. 1991) (holding that plan providing for unequal treatment to shareholders in the same class violated Bankruptcy Code Section 1123(a)(4)).7 19. That the inter-class discrimination is tied to a Plan voting election to grant or not

grant releases to non-Debtors does not make the discrimination any less offensive or repugnant. See In re MCorp Fin., Inc., 137 B.R. 219, 236 (Bankr. S.D. Tex. 1992) (finding death trap based on Plan voting to be impermissible and noting [t]here is no authority in the Bankruptcy Code for discriminating against classes who vote against a plan of reorganization), appeal dismissed, 139 B.R. 820 (S.D. Tex. 1992); In re Allegheny Intl, Inc., 118 B.R. 282, 304 n.15 (Bankr. W.D. Pa. 1990) (same). 20. This Courts decision in In re Zenith Electronics Corp. is not to the contrary. In

the first instance, the Zenith plan provided for the same treatment for the entire class depending on the vote of the class. See 241 B.R. 92, 105 n.21 (Bankr. D. Del. 1999) (noting that all members of the class at issue would be treated the same). Zenith does not support differentiation in treatment amongst members of the same class based on their individual votes. As was addressed in the AOV Industries case, cited favorably in this Courts Zenith decision (see id.), the current Plan would result in certain members of Class 19 receiving different treatment, either ______________________
7

Moreover, requiring certain members of a class to tender additional consideration to obtain the same recovery as other members of the class also violates Bankruptcy Code Section 1123(a)(4). See In re AOV Indus., Inc., 792 F.2d at 1152; Class Five Nevada Claimants v. Dow Corning Corp. (In re Dow Corning Corp.), 280 F.3d 648, 659-61 (6th Cir. 2002) (differences in requirements to obtain class recovery impermissible). Here, only the holders of the REIT Series possess direct claims against the Debtors and JPMorgan, and to the Trust Preferred Securities, in connection with the purported exchange transaction that is the subject of the TPS Litigation. To the extent the Court declines to require the separate classification of REIT Series and the Series K and R preferred shares, the joint classification of such interests, and the requirement of Plan Section 41.6 that holders of REIT Series give up those unique rights to receive the same distributions as non-REIT Series holders, would constitute a further violation of Bankruptcy Code Section 1123(a)(4). 12

in the form of: (a) the forced forfeiture of unique rights/claims (e.g., unique rights/claims against the Debtors and JPMorgan and/or to the Trust Preferred Securities) in order to receive the same Plan distributions as other members of Class 19 (to the extent the Court does not require separate classification of the REIT Series); and/or (b) deprivation of any recovery from the estate if they decline to grant releases of those unique rights/claims. Both such instances of inter-class discrimination are forbidden under Bankruptcy Code Section 1123(a)(4). 21. Respectfully, the Courts reliance in its January 2011 Opinion on In re Dana

Corp. for the proposition that Bankruptcy Code Section 1123(a)(4) does not require equal treatment among members of a class, but merely the opportunity for equal treatment, is misplaced. See January Opinion, at 85-86. In Dana Corp., a portion of the approximately 133,000 members of the Ad Hoc Committee of Asbestos Personal Injury Claimants (the Ad Hoc Committee) entered into a number of settlement agreements with the Debtor wherein the settling members of the Ad Hoc Committee were to receive under the Debtors plan approximately $267 per member in satisfaction of each members personal injury claim against the Debtor. See Ad Hoc Comm. of Pers. Injury Asbestos Claimants v. Dana Corp. (In re Dana Corp.), 412 B.R. 53, 57 (S.D.N.Y. 2008). Since all personal injury claimants were grouped together into one class, those members who chose not to settle would receive nothing through the Plan, but their claims would pass through the bankruptcy and [be] reinstated against the Debtor post-bankruptcy. Id. So, while the Court did correctly cite Dana Corp. for the

proposition that [w]hat is important is that each claimant within a class have the same opportunity to receive equal treatment, the equal opportunity afforded dissenting class members in Dana Corp. is not akin to the opportunity afforded dissenting class members in the present case. January Opinion, at 86. In Dana Corp., the members of the class who chose not to

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settle with the Debtor had their claims preserved, to be reinstated after the bankruptcy, and thus ha[d] the opportunity to settle their claims or litigate them the same options given to the participants in the settlement agreements. Dana Corp., 412 B.R. at 62. 22. Here, dissenting members of Class 19 have no such equal opportunity. Instead,

the rights/claims held by members of Class 19 who decline to grant releases to non-Debtors, are to be discharged and released regardless of whether any property will have been distributed or retained pursuant to the Plan on account of such Claims . . . and the assets to which the TPS Consortium has asserted rights/claims (the Trust Preferred Securities) are to be transferred free and clear with JPMorgan to be afforded the protections of Bankruptcy Code Section 363(m). See Plan, 41.2, 36.1(a)(10). Thus, far from the equal opportunity afforded claimants in Dana Corp., the dissenting members of Class 19 are unfairly discriminated against by the Plan not only because they do not receive their equal distribution of residual estate value under the Plan, but also because they purportedly lose their rights to litigate their claims against JPMorgan and others post-bankruptcy. 23. The death trap provisions of the Plan would deprive dissenting members of

Class 19 of their entitlement to share in, inter alia: (a) the proceeds of claims and causes of action vested in the Liquidating Trust; and (b) value associated with the reorganized Debtors. In addition to the serious disclosure problems associated with demanding that parties choose between retaining their rights against third parties and retaining their entitlement to a share of unknown value (addressed below), this death trap treatment (and the resulting different treatment of interest holders within the same class) renders the Plan incapable of confirmation.

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II.

The Disclosure Statement Fails To Provide Stakeholders With Adequate Information, As Required By Bankruptcy Code Section 1125, And, Must Not Be Approved. 24. The Bankruptcy Code requires a disclosure statement to contain adequate

information, that is, information of a kind, and in sufficient detail, as far as is reasonably practicable . . . that would enable . . . a hypothetical investor of the relevant class to make an informed judgment about the plan . . . 11 U.S.C. 1125; see also Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 417 (3d Cir. 1988) (The importance of full disclosure is underlaid by the reliance placed upon the disclosure statement by the creditors and the court. Given this reliance, we cannot overemphasize the debtors obligation to provide sufficient data to satisfy the Code standard of adequate information.), cert. denied, 488 U.S. 967 (1988); In re Scioto Valley Mortg. Co., 88 B.R. 168, 170 (Bankr. S.D. Ohio 1988) (The disclosure statement was intended by Congress to be the primary source of information upon which creditors and shareholders could rely in making an informed judgment about a plan of reorganization.). As the legislative history of Bankruptcy Code Section 1125 notes: If adequate disclosure is provided to all creditors and stock holders whose rights are to be affected, then they should be able to make an informed judgment of their own rather than having a court or the Securities Exchange Commission inform them in advance whether the proposed plan is a good plan. H.R. Rep. No. 95-595, at 226-31 (1977). 25. The provision of adequate information is at the very heart of the reorganization

process. See In re Crowthers McCall Pattern, Inc., 120 B.R. 279, 300 (Bankr. S.D.N.Y. 1990). As such, [a] disclosure statement . . . is evaluated . . . in terms of whether it provides sufficient information to permit enlightened voting by holders of claims or interests. BSL Operating Corp. v. E. Taverns, Inc. (In re BSL Operating Corp.), 57 B.R. 945, 950 (Bankr. S.D.N.Y. 1986).

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A court should examine each disclosure statement individually to discern whether the Bankruptcy Codes adequate information requirement is satisfied. See In re Worldcom, Inc., No. M-47 HB, 2003 WL 21498904, at *10 (S.D.N.Y. June 30, 2003) ([T]he approval of a disclosure statement . . . involves a fact-specific inquiry into the particular plan to determine whether it possesses adequate information under 1125.) (quoting Abel v. Shugrue (In re Ionosphere Clubs, Inc.), 179 B.R. 24, 29 (S.D.N.Y. 1995)). A. Given The Debtors Failure To Identify And Value Retained Causes Of Action, The Disclosure Statement Fails To Provide Class 19 With Adequate Information As Required Under Bankruptcy Code Section 1125. In order for a disclosure statement to provide adequate information, it must list

26.

the assets of the bankruptcy estate and their value. In re Phoenix Petroleum Co., 278 B.R. 385, 393 (Bankr. E.D. Pa. 2001) (emphasis added). Moreover, numerous courts have recognized that among the normal topics for inclusion in a disclosure statement are a description of the available assets and their value. Id. at 393 n.6; see Westland Oil Dev. Corp. v. MCorp Mgmt. Solutions, Inc., 157 B.R. 100, 103 (S.D. Tex. 1993) (same); In re Cardinal Congregate I, 121 B.R. 760, 765 (S.D. Ohio 1990) (same); see also In re Dakota Rail, Inc., 104 B.R. 138, 147 (D. Minn. 1989) (Because the knowledge of a debtors financial condition is essential before any informed decision concerning the merits of a chapter 11 can be made, it is vital, if not a prerequisite, that a description of available assets, their value, and certainly their ownership be disclosed under 1125.) (citations omitted). 27. The debtors obligation to disclose the value of all assets administered by a plan

extends to the valuation of estate litigation claims. See Westland Oil, 157 B.R. at 103 (A claim with potential is a potential asset. The creditors have a right to know what the debtors assets are even though the potential may be contingent, dependent, or conditional. While [the debtor] did

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not have to give an exact dollar value for the claim, it was obliged to give an estimate . . . [notwithstanding] that causes of action are difficult to value. The code requires adequate disclosure, not just selective disclosure.); Polis v. Getaways, Inc. (In re Polis), 217 F.3d 899, 902 (7th Cir. 2000) (Legal claims are assets whether or not they are assignable, especially when they are claims for money; as a first approximation, the value of [the debtors] claim is the judgment that she will obtain if she litigates and wins multiplied by the probability of that . . . happy outcome.); In re Solly, 392 B.R. 692, 696 (Bankr. S.D. Tex. 2008) (finding the Court must value the [litigation] claim and determine that value by estimating the value of the claim on the petition date multiplied by the percentage likelihood that the debtor will prevail in the lawsuit) (citation omitted); Contested Valuation in Corporate Bankruptcy: A Collier Monograph, 15.03 (Robert J. Stark et al. eds., 2011) (describing the prescribed method for valuing estate causes of action). Indeed, this Court, in citing favorably to Circuit Judge Posners Polis opinion, has recognized that [u]nder bankruptcy law, even speculative litigation claims are property of the estate . . . . Gorka v. Joseph (In re Atlantic Gulf Communities Corp.), 326 B.R. 294, 299 (Bankr. D. Del. 2005) (MFW); see Browning Mfg. v. Mims (In re Coastal Plains, Inc.), 179 F.3d 197, 207-08 (5th Cir. 1999) (explaining that debtors have an express, affirmative duty to disclose all assets, including contingent and unliquidated claims) (emphasis in original). 28. As noted above, Bankruptcy Code Section 1125 requires a plan proponent to

disclose the estates assets and the values of those assets. And, where a precise valuation is not possible (such as with respect to litigation claims), Bankruptcy Code Section 1125 requires that the plan proponent provide at least the best estimate available. Here, the Debtors have been in Chapter 11 for over three years, have retained and compensated multiple professionals capable of valuing the estates claims against third parties, and, approximately six months ago, retained

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special counsel for the specific purpose of investigating and assessing estate claims against third parties. See Application to Employ Klee, Tuchin, Bogdanoff & Stern LLP As Special Litigation Counsel, 6 [Docket No. 8111] (requesting retention, nunc pro tunc to June 24, 2011). Yet, the Debtors either are incapable of disclosing, or have chosen not to disclose, information regarding the nature and potential value of claims against officers and directors, ratings agencies, accountants, investment bankers, law firms and others bearing potential liability for the historic failure of Washington Mutual which claims will be vested in the Liquidating Trust and the proceeds thereof distributed to stakeholders. Without that information, members of Class 19 (who, based on current projections, would appear to be the primary beneficiary of recoveries on such claims), are unable to make an informed decision as to Plan voting. 29. The Debtors previously advanced, at the last confirmation hearing, the argument

that their failure to value estate claims should be forgiven because the value of those claims would simply flow down the waterfall. In the first instance, as discussed supra, that statement is false in that members of Class 19 who do not grant releases are deprived of any share of the litigation recoveries as a result of the death trap provisions of the Plan. So, the value does not flow down to them. But, just as importantly at the Disclosure Statement stage, the death trap provisions of the Plan (effectively requiring members of Class 19 to elect to keep their personal claims against non-Debtors or to share in, inter alia, the proceeds of retained estate litigation) make the provision of adequate information regarding the nature and potential value of such claims necessary to informed voting and its absence a fatal flaw in the Disclosure Statement.

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B.

Given The Death Trap Mechanism And Concomitant Potential Fluctuations In Recoveries, The Disclosure Statement Fails To Provide Members Of Class 19 With Adequate Information As Required Under Bankruptcy Code Section 1125. The principle of adequate disclosure requires, among other things, information

30.

relevant to the risks posed to creditors under the plan. In re Phoenix Petroleum Co., 278 B.R. 385, 393 n.6 (Bankr. E.D. Pa. 2001) (citing In re Metrocraft Pub. Servs., Inc., 39 B.R. 567, 568 (Bankr. N.D. Ga. 1984)); see also In re Radco Props., Inc., No. 08-03611, 2009 WL 612149, at *12 (Bankr. E.D.N.C. Mar. 9, 2009) (Creditors not only rely on the disclosure statement to form their ideas about what sort of distribution or other assets they will receive but also what risks they will face.) (citation omitted). 31. Even if the Disclosure Statement provided an adequate description and potential

ranges of values for retained causes of action and other estate assets (which it does not), the death trap mechanism would render all such information inadequate until such time as Plan voting had been completed, tabulated and reported (i.e., long after the point in time when the votes of Class 19 would be solicited). More specifically, the Plan, as currently constituted, would death trap the recoveries of non-releasing members of Class 19 and reallocate that value to other stakeholders who had granted releases. For example, if all members of Class 19 (as currently constituted) were to grant the demanded releases, the total value allocated to Class 19 would be spread over an aggregate $7.5 billion liquidation preference.8 If, on the other hand, only a few members of Class 19 granted the demanded releases, all value allocated to Class 19 would be available for distribution to those few holders. In the extreme, because the Plan does ______________________
8

Because, as noted above, the Debtors have failed to provide adequate descriptions or values of retained estate assets and claims, it is impossible to calculate what that recovery would be. But, presumably, it would be less than par (based on liquidation preferences).

19

not cap the recoveries of Class 19, one out of the twenty million shares of Series K preferred stock (with a liquidation preference of $25.00) could receive the entire recovery allocated to Class 19 (which, again, is of unknown value because the Disclosure Statement fails to provide adequate information as to the value of retained estate assets and claims) if no other member of Class 19 granted the demanded third party releases.9 32. As such, the Disclosure Statement is incapable of providing adequate information

to Class 19 members, at the time they are voting, as to the amount of consideration they would receive in exchange for their release of claims against third parties or the amount of Plan consideration they would risk forfeiting by declining to grant such releases. Accordingly, as a result of the death trap provisions of the Plan, the Disclosure Statement fails to provide adequate information to members of Class 19 and should not be approved.10 C. The Disclosure Statement Fails To Provide Members Of Class 19 With Adequate Information Regarding The Likely Amount Of Claims In Class 18. The Court will likely recall that, during the most recent confirmation proceedings

33.

in July 2011, the Debtors attempted to persuade the Court to ignore positions taken by representatives of Classes 19, 20, 21 and 22 with unsupported statements that such classes were hopelessly out of the money and that their arguments were made only to extort hold up ______________________
9

The TPS Consortium would note that, because of their large reported REIT Series holdings, the Settlement Noteholders would likely be among the largest beneficiaries of a death trap induced reallocation of Class 19 value. This Court previously recognized the importance of stakeholders having adequate information at the time they are asked to vote on a plan, in the context of a plan modification filed subsequent to plan voting, holding that a party must be given an opportunity to change its prior election . . . [because a party] must know the prospects of its treatment under the plan before it can intelligently determine its rights. . . . In re Century Glove, Inc., 74 B.R. 958, 961 (Bankr. D. Del. 1987).

10

20

value. In advancing that position, Debtors counsel suggested that there were tens of billions of dollars of claims in Class 18 that would make a recovery to Classes 19 and below impossible. See Transcript of July 14, 2011 Hearing (Testimony of Jonathan Goulding) at 182:9-184:20 (discussing the forty billion dollar MARTA claim that would have to be satisfied before recoveries flowed down to the preferred stock classes). Such suggestions, while useful in the situation in which Debtors counsel found itself (needing to discredit arguments that the interests of Classes 19 and below did, in fact, merit consideration), were contrary to positions previously taken by the Debtors. See Debtors Amended Thirty-Second Omnibus (Substantive) Objection to Claims (Claim Nos. 3812, 2689, 3174, 3179, 3187) [Docket No. 3801] (claiming the MARTA claim to be worthless); Motion to Estimate the Maximum Amount of Certain Claims for Purposes of Establishing Reserve Under the Debtors Confirmed Chapter 11 Plan [Docket No. 5971] (same). And, in the months since Debtors counsels statements regarding the

existence of tens of billions of dollars in Class 18 claims, more and more of such potential claims have proven to be worth little more than token settlements (if any amount). See, e.g., (a) Notice of Withdrawal of Proof of Claim for Ontario Teachers Pension Plan Board re: Claim Nos. 2759 and 2761 [Docket No. 9186]; (b) Notice of Withdrawal of Proof of Claim for Brockton Contributory Retirement System re: Claim No. 2763 [Docket No. 9185]; (c) Motion of Debtors for an Order Pursuant to Section 105(a) of the Bankruptcy Code and Bankruptcy Rule 9019, Approving Stipulation and Agreement by and Among the Debtors and the G&E Group [Docket No. 9279] (seeking authority to resolve $600 million in purported Class 18 claims for pennies on the dollar, and calling into question billions of dollars in similar claims). 34. To provide members of Class 19 with adequate information regarding the Plan (in

particular, the likelihood of receiving an additional recovery in the form of Liquidating Trust

21

proceeds upon satisfaction of Class 18 Claims (if any)), the Disclosure Statement should be updated to provide a detailed description of the nature and amount of any remaining claims asserted in Class 18 (including any analysis the Debtors have conducted regarding the viability of such claims). D. To The Extent Solicitation Is Allowed, Other Serious Deficiencies Should Be Remedied. In addition to the above-cited disclosure deficiencies, to the extent solicitation is

35.

to be allowed, the following additional disclosures should be included in the Disclosure Statement: The TPS Consortium is disappointed that its purported fiduciary, the Official Equity Committee, appears to have collaborated in the development of the revised Plans terms. Given that the Plan appears to be materially worse for a substantial portion of the Equity Committees constituents and the Equity Committees actions (including its apparent acquiescence to a full release of claims against the Settlement Noteholders for little (if any) consideration) appear so contrary to the interests of all shareholders, the TPS Consortium is concerned that the Equity Committee has acted in the interests of its members and professionals, rather than those to whom its fiduciary duties flow. To that end, the TPS Consortium and other members of Class 19 should be provided the following disclosures: (a) the compensation and other benefits that will be provided to members of the Equity Committee who are granted post-confirmation employment with the reorganized Debtors and/or Trust Advisory Board; and (b) any discussions or agreements concerning the Equity Committees current counsel, Susman Godfrey LLP, being granted employment to represent the reorganized Debtors and/or the Liquidating Trust. Such additional disclosure should be included in Section III.B.4 of the Disclosure Statement. As noted above, the TPS Consortium believes the diversion, to holders of common equity, of 30% of the value of the stock of the reorganized Debtors and proceeds from litigation against third parties, before the payment in full of preferred equity holders liquidation preferences, to be inappropriate. Upon information and belief, the chairman of the Equity Committee holds only the common shares that would be benefited by the contravention of the absolute priority rule to divert potentially-significant value away from preferred equity holders. In considering the propriety of that distribution scheme, members of Class 19 are entitled to know the existence and extent of the Equity Committees members holdings of the preferred equity they have chosen to disadvantage.

22

The TPS Consortium has taken an appeal of this Courts decision in the TPS Litigation as to ownership of the Trust Preferred Securities. If the TPS Consortium prevails on appeal, and the Trust Preferred Securities are determined never to have become part of the Debtors estate (and therefore were not property that could be transferred to JPMorgan under the Plan), there will likely be effects on any version of the Plan confirmed in the interim. Parties in interest should be informed that the outcome of the TPS Litigation appeal may affect the rights and/or distributions otherwise proposed to be granted under the Plan. That disclosure should be included amongst the Risk Factors discussed in Section X.A. of the Disclosure Statement. As set forth more fully in the TPS Consortiums concurrently-pending motion to stay confirmation proceedings pending resolution of the TPS Litigation appeal [Docket No. 9260], the TPS Consortium believes this Court has been mandatorily and automatically divested of jurisdiction to approve those portions of the Plan (and related global settlement agreement) intended by the Debtors to: (a) resolve issues currently on appeal; (b) affect the District Courts appellate jurisdiction; and/or (c) deprive the members of the TPS Consortium of their Constitutionallyprotected due process and property rights. Further, to the extent it prevails in such arguments, the TPS Consortium believes any Order confirming the Plan in excess of this Courts jurisdiction would be void ab initio. Estate stakeholders being asked to vote on the Plan should be informed of the TPS Consortiums position and the possibility that Plan approval and resulting distributions might be reversed at some point in the future. That disclosure should be included amongst the Risk Factors discussed in Section X.A. of the Disclosure Statement. Before being asked to vote on the prospective receipt of recoveries premised, in part, on the reorganized Debtors ability to make use of the Debtors tax attributes through the acquisition of new businesses or originations, stakeholders should be provided with: (a) any analysis conducted by, or on behalf of, the Debtors or the Equity Committee as to the viability of that business plan; and (b) information regarding any prospective acquisitions considered, or under consideration, by the Debtors and/or the Equity Committee. Disclosure of the results or conclusions of such analyses and potential acquisitions should be included in Section VII.A.2.b. of the Disclosure Statement. Members of Class 19 should be provided further disclosure, in the Disclosure Statement, regarding the nature and amount of disputed claims that might be payable by the estates and whether, and to what extent, the Debtors have included in their projections cash reserves for such claims (e.g., claims asserted in connection with the DimeQ litigation). Without such information regarding disputed claims and reserves, members of Class 19 will be unable to determine the amount of claims that might be payable before beneficial interests in the Liquidating Trust would pass down to Class 19. The Updated Liquidation Analysis (see Disclosure Statement, Ex. C) does not provide adequate information, including, inter alia, because: (a) it fails to place 23

any value on estate claims and/or causes of action (including those against the Settlement Noteholders and/or Third Party Litigation Targets) that could still be pursued if the case was converted to a Chapter 7 Proceeding; (b) the assumption that the global settlement agreement (including its forced release of stakeholder claims against non-debtors) could be consummated in a chapter 7 proceeding is not reasonable; (c) apparently as a result of the assumption that the global settlement agreement would be consummated in a chapter 7 proceeding, the Updated Liquidation Analysis fails to accurately depict the value of disputed assets (e.g., $4 billion in Disputed Deposits and upwards of $5.8 billion in tax refunds to which WMI has previously claimed sole entitlement) that could be available for distribution in a chapter 7 proceeding; (d) it fails to depict recovery scenarios or claim amounts, in either Chapter 11 or Chapter 7, for Classes junior to Class 16; and (e) it apparently assumes (but fails to depict) claims asserted against non-Debtors in Classes 17A, 17B and 18 would still be paid by WMIs chapter 7 trustee.

36.

To the extent solicitation is allowed, the proposed solicitation procedures and

schedule should be modified as follows: In the Motion, the Debtors seek authority to reduce by almost half the period prescribed under Federal Rule of Bankruptcy Procedure 2002(b) for filing Plan objections, while reserving for themselves upwards of two weeks to respond to any such objections (requesting an open-ended response period ending three days prior to whatever date is scheduled for the confirmation hearing). See Motion, 106-107. Given the serious and complex issues spawned by the revised Plan (as discussed herein, and as will be addressed at any confirmation proceeding), the TPS Consortium believes Plan opponents should be allowed at least the time set forth in the Federal Rules of Bankruptcy Procedure to prepare for trial. Under the revised Plan, creditors are allowed up to one year following any Effective Date to elect whether to grant the demanded release of their claims against third parties before they will receive Plan distributions to which they are entitled. See Motion, 98. With little explanation, the Debtors solicitation procedures require holders of Equity Interests in only Classes 19 and 22 to make release elections by February 22, 2012 (which may or may not precede conclusion (or even the commencement) of any confirmation proceedings and/or this Courts decision on Plan confirmation).11 At a minimum, holders of Equity Interests should be allowed to reserve their release elections until expiration of a

______________________
11

The Debtors cite tax reasons for imposing the February 22, 2012 deadline for release elections from holders of Equity Interests. Respectfully, the Court may recall the Debtors previously making claims that issues had to be resolved by a date certain for tax reasons that proved not to have any basis in fact or law. 24

defined period following any final Order confirming the Plan. Further, the voting procedures should be modified to allow holders of Equity Interests to vote on the Plan and actually withhold their release elections as suggested in Paragraph 98 of the Motion (the current Ballots for Equity Interests effectively require that holders in Class 19 either abstain from voting entirely or be deemed to have granted the release). TPS CONSORTIUM LETTER 37. Notwithstanding the legal defects in the Plan and Disclosure Statement, should

the Court nonetheless allow solicitation, the TPS Consortium respectfully requests that it be permitted to provide a letter enclosure for distribution to Class 19, with the Disclosure Statement, reflecting the TPS Consortiums views as described herein, including the right to make a recommendation to vote against acceptance of the Plan (as the Court allowed in connection with the prior two solicitation efforts). See Docket Nos. 5659 and 7081; see also Transcript of December 17, 2008 Hearing at 44:7 - 46:21, In re Motor Coach Indus. Intl, Inc., No. 08-12136 (Bankr. D. Del. 2008) [Docket No. 556] (allowing inclusion in solicitation package of a letter outlining the plan opponents views of the proposed plan); In re Tucker Freight Lines, Inc., 62 B.R. 213, 215, 215 n.1 (Bankr. W.D. Mich. 1986) (the bankruptcy court permitted a creditors committee objecting to a disclosure statement to include in the ballot package a letter recommending that creditors vote against acceptance of the plan). A copy of the TPS Consortiums proposed communication to Class 19 is attached as Exhibit 1 hereto. RESERVATION OF RIGHTS 38. The TPS Consortium expressly reserves all of its rights to object to the Plan

and/or the Disclosure Statement on any grounds whatsoever, including by joining in the objections of other parties, regardless of whether those grounds are addressed herein.

25

WHEREFORE, the TPS Consortium respectfully requests that the Court (a) deny the Motion, as set forth herein, and (b) grant such other and further relief as it deems just and proper.

Dated: Wilmington, Delaware January 4, 2012 Respectfully submitted, CAMPBELL & LEVINE LLC /s/ Mark T. Hurford Marla Rosoff Eskin, Esq. (DE 2989) Bernard G. Conaway, Esq. (DE 2856) Mark T. Hurford, Esq. (DE 3299) Kathleen Campbell Davis, Esq. (DE 4229) 800 North King Street, Suite 300 Wilmington, DE 19809 (302) 426-1900 (302) 426-9947 (fax) and BROWN RUDNICK LLP Robert J. Stark, Esq. Seven Times Square New York, NY 10036 (212) 209-4800 (212) 209-4801 (fax) and Jeremy B. Coffey, Esq. Daniel J. Brown, Esq. One Financial Center Boston, MA 02111 (617) 856-8200 (617) 856-8201 (fax) Counsel for the TPS Consortium

26

Exhibit 1 Proposed Communication to Class 19

Communication To Members Of Class 19

To the Members of Class 19: This communication is being transmitted on behalf of a consortium of investors (the TPS Consortium) proposed to be treated under Class 19 of the chapter 11 plan (the Plan) of Washington Mutual, Inc. (together with affiliates, the Debtors), a copy of which Plan is enclosed in the materials you have received with this letter. In connection with your receipt of the Plan and accompanying materials, the Debtors are seeking your approval of the Plan and then intend to seek to have the Plan confirmed and made binding on you by the United States Bankruptcy Court for the District of Delaware (the Court). AS DISCUSSED BELOW, THE TPS CONSORTIUM BELIEVES THE PLAN SUFFERS FROM NUMEROUS FATAL FLAWS, INCLUDING THE DEPRIVATION OF CLASS 19 MEMBERS ENTITLEMENTS TO SIGNIFICANT VALUE AND THE INAPPROPRIATE DIVERSION OF THAT VALUE TO OTHER PARTIES. THE TPS CONSORTIUM BELIEVES MEMBERS OF CLASS 19 SHOULD VOTE AGAINST THE PLAN. PLEASE NOTE: UNDER THE VOTING PROCEDURES PROPOSED BY THE DEBTORS, YOUR VOTE AGAINST THE PLAN WILL NOT PREVENT YOU FROM RECEIVING A DISTRIBUTION SHOULD THE PLAN BE CONFIRMED OVER YOUR DISSENTING VOTE. The TPS Consortium and its professionals have carefully reviewed the Plan, and believe it to be substantially-similar (if not worse, from the perspective of Class 19) to the prior two versions of the Plan properly rejected by holders of preferred equity interests. Moreover, the TPS Consortium believes this latest version of the Plan is just a further demonstration of the Debtors abdication of their duties to preferred equity holders, for the benefit of certain favored outsiders (such as JPMorgan Chase Bank, N.A. and other parties who might bear significant liability to the Debtors estates). In particular, the revised Plan: (a) appears to be the product of inappropriate decision-making by the Official Committee of Equity Security Holders (the Equity Committee); and (b) would deprive members of Class 19 of value to which they are entitled in favor of structurally inferior classes. In particular, the TPS Consortium believes you should be aware of the following critical issues before casting your ballot on the Plan:

Your Vote Against The Plan Will Not Prevent You From Receiving A Distribution Under the voting procedures proposed by the Debtors, you may vote against the Plan and still retain your right to a distribution even if the Plan is confirmed over your dissenting vote. As discussed further below, if Class 19 is determined to reject the Plan, that rejection may bring into effect important protections against the diversion of value away from Class 19 - so your vote against the Plan is important. To vote against the Plan, you should check the box entitled Reject the Plan in Item 2 of the enclosed ballot. A separate issue under the Plan is the propriety of the Debtors demand that you grant a release of your individual claims against third parties before the Debtors will allow you to receive a Plan distribution (which is addressed under Item 4 of the enclosed ballot). The TPS Consortium believes such a condition is illegal and will oppose it at the confirmation hearing. You should make your own decision as to whether you will grant the demanded release. But, even if you elect to grant the demanded release (and retain the right to a distribution under the current version of the Plan), the TPS Consortium still recommends you cast your vote against confirmation of the Plan. Significant Benefits Negotiated For Equity Committee Members And Professionals The Equity Committee purports to act on behalf of, and to be a fiduciary to, members of Class 19. As such, it was with great disappointment that the TPS Consortium learned of the Equity Committees apparent role in formulating the terms of this latest unfavorable Plan. Ultimately, the Court will determine the propriety of the conduct of the Equity Committees members and professionals. But, in considering whether to support or oppose the revised Plan, you should be aware of the following features of the Plan (which the TPS Consortium believes may help explain the Equity Committees current, unexpected, position with respect to the Plan): The Equity Committee has now negotiated for its members control over the reorganized Debtors and certain post-confirmation litigation, and the ability to appoint themselves or their designees to compensated, postbankruptcy positions related thereto (although the exact amounts of compensation and benefits remain undisclosed). As set forth in the Disclosure Statement (see Disclosure Statement III.B.4.a), the chairman of the Equity Committee has already secured such a compensated position for himself. Further, the Equity Committee apparently has also selected a representative of creditors in Class 18 (who would be paid ahead of Class 19 under the Plan) and a representative of a creditor in Class 16 (also to be paid

ahead of Class 19 under the Plan) to such compensated positions. The TPS Consortium is not aware of any intention by the Equity Committee to have the interests of Class 19 represented post-bankruptcy. The Equity Committee has now negotiated for its professionals a budget of up to $20,000,000 to pursue certain litigation post-bankruptcy.1 See Disclosure Statement, III.B.4.c. Upon information and belief, the proposed diversion of value from Class 19 to subordinate Classes in contravention of the absolute priority rule (discussed further below) would personally benefit the chairman of the Equity Committee, who appears to hold only interests in such subordinate classes and not preferred equity interests subject to treatment under Class 19. The Equity Committee negotiated for its members and professionals significant protections from claims that might be asserted against them to the extent their actions in connection with the negotiation of the Plan were inappropriate. See Plan, 41.8.

The Plan Contemplates The Diversion of Significant Value Away From Class 19 A remarkable feature of the revised Plan is its contemplated diversion of value away from structurally-senior preferred equity and a recovery for common equity before preferred equitys liquidation preferences have been satisfied. More specifically, the Plan contemplates a value split of 70% to preferred equity (Class 19) and 30% to common equity (Classes 21 and 22) with respect to: (a) the stock of the reorganized Debtors; and (b) remaining assets, including, inter alia, recoveries on significant claims against third parties potentially bearing responsibility for the Debtors collapse and bankruptcy filing (e.g., investment banks, ratings agencies, accountants, auditors and other professionals (together, the Third Party Litigation Targets)). The Court has already conducted lengthy valuation proceedings and determined the reorganized Debtors (including their residual tax attributes) to have significant value, which value would accrue to holders of the stock in the reorganized Debtors. Moreover, the TPS Consortium believes the estates claims against the Third Party Litigation Targets could result in significant additional recoveries that could otherwise be available for distribution to Class 19 upon satisfaction of remaining claims against the Debtors (if any). In connection with the last confirmation hearing, over the Debtors strenuous objection, the TPS

While certain of the Debtors professionals have also negotiated post-confirmation employment for themselves under the same budget (see Disclosure Statement, III.B.4.a), it appears the Equity Committee is otherwise free to retain its current professionals post-bankruptcy.

Consortium obtained Court authority to include in the trial record excerpts from a detailed report by the United States Senates Permanent Subcommittee on Investigations illustrating the types and potential value of just some of the claims that might be brought against Third Party Litigation Targets. For your consideration, a copy of the TPS Consortiums submission is attached hereto at Exhibit A.2 In sum, the diversion of 30% of the foregoing value to subordinate classes may result in your forfeiture of significant additional recoveries. Under Bankruptcy Code Section 1129(b)(2)(C), holders of preferred equity interests are entitled to receive payment of their full liquidation preferences before junior classes can receive any recovery. That entitlement (commonly known as the absolute priority rule) is triggered when a class of preferred equity votes against a Plan. If, however, the class of preferred equity votes in favor of a plan that provides for a recovery to junior classes before payment in full of applicable liquidation preferences, the protections of the absolute priority rule may be lost. As such, the TPS Consortium urges you to vote against the Plan to prevent the diversion of potentially significant value to subordinate classes before you have received payment, in full, of the liquidation preferences to which you are otherwise entitled. Abandonment of Potentially-Valuable Estate Claims During the July 2011 confirmation proceedings in connection with the last version of the Plan, the Equity Committee, with the support of the TPS Consortium, achieved a significant victory in obtaining permission to proceed with litigation against certain hedge funds accused of engaging in illegal insider trading in securities of the Debtors (the Settlement Noteholders). In the September opinion denying confirmation of the Plan, the Court provided a lengthy discussion and analysis of potential claims against the Settlement Noteholders, finding such claims to be colorable even on the limited evidence adduced through the minimal discovery conducted by the Equity Committee to that point. Recovery on such claims could result in significant additional value being made available to members of Class 19 (either through affirmative recoveries from the Settlement Noteholders or through disallowance of their claims against the Debtors (resulting in more value flowing down to Class 19 through the recovery water fall)).
2

The TPS Consortium encourages you to obtain a copy of the full Senate Report at http://hsgac.senate.gov/public/_files/Financial_Crisis/FinancialCrisisReport.pdf. The specific case study pertaining to Washington Mutual is presented at pages 48 160 therein.

But, rather than pursuing that litigation (or even conducting additional discovery), the Equity Committee appears to have acquiesced to the revised Plans: (a) full release of all claims against the Settlement Noteholders (including claims you might have in your individual capacities); and (b) a demand that the Courts September opinion (as it applies to potential claims against the Settlement Noteholders) be withdrawn and vacated as if the Court had never found such claims to be colorable. In the view of the TPS Consortium, this extraordinary abandonment of potentially-significant value for Class 19 is not justified by the Settlement Noteholders potential provision of a secured loan, post-bankruptcy, to the reorganized Debtors3 or other minimal consideration supposedly to be provided by the Settlement Noteholders in connection with the Plan. The TPS Consortium does not believe the Debtors estates are receiving sufficient value in exchange for the release of significant potential claims against the Settlement Noteholders, and recommends that members of Class 19 vote against the Plan and support further investigation into such claims. In sum, the TPS Consortium believes the Plan fails to provide members of Class 19 with an appropriate recovery on account of their interests and is another in a series of proposed settlements negotiated against the interests of Class 19. In that regard, the TPS Consortium believes members of Class 19 should vote against the Plan and elect to opt out of the releases proposed to be granted to JPMC, the FDIC, the Settlement Noteholders and others. To the extent you share our concerns regarding the Plan, we would also encourage you to voice your opinion to others who will be voting on the Plan.
3

As an initial matter, the identities of the lenders remain to be determined (and may not include any of the Settlement Noteholders). See Disclosure Statement, III.B.2. To the extent the Settlement Noteholders do actually participate as lenders, it would appear they would reap potentially significant additional rewards for themselves (as opposed to making contributions in exchange for the release of claims against them) with very little risk: (a) the potential loans would be fully guaranteed by all existing and future subsidiaries of the reorganized Debtors; (b) the potential loans would be fully secured by substantially all of the assets of the reorganized Debtors and the guarantors; (c) the Settlement Noteholders, to the extent they actually do participate as lenders, could be entitled to millions of dollars in fee income if the Debtors actually borrow money; (d) the Settlement Noteholders, to the extent they actually participate as lenders, would be entitled to significant interest income on amounts borrowed; (e) of the $125 million lending commitment, $100 million would be subject to significant limitations and restrictions and might never be funded; and (f) the Settlement Noteholders, to the extent they become lenders, would be granted seat on the reorganized Debtors board, with significant power to determine whether the Debtors actually draw down on the credit facility. See generally, Disclosure Statement, III.B.2; Plan, Ex. C.

If you or your counsel wish to discuss the foregoing prior to casting your ballot, please feel free to contact our counsel Robert Stark (212-209-4862) or Jeremy Coffey (617856-8595) of Brown Rudnick LLP. Very truly yours,

The TPS Consortium

EXHIBIT A

CORPORATE WASTE, MISMANAGEMENT, AND BREACHES OF FIDUCIARY DUTY The first chapter focuses on how high risk mortgage lending contributed to the financial crisis, using as a case study Washington Mutual Bank (WaMu). . . . This case study focuses on how one banks search for increased growth and profit led to the origination and securitization of hundreds of billions of dollars in high risk, poor quality mortgages that ultimately plummeted in value, hurting investors, the bank, and the U.S. financial system. WaMu had held itself out as a prudent lender, but in reality, the bank turned increasingly to higher risk loans. Over a four-year period, those higher risk loans grew from 19% of WaMus loan originations in 2003, to 55% in 2006, while its lower risk, fixed rate loans fell from 64% to 25% of its originations. At the same time, WaMu increased its securitization of subprime loans sixfold, primarily through its subprime lender, Long Beach Mortgage Corporation, increasing such loans from nearly $4.5 billion in 2003, to $29 billion in 2006. From 2000 to 2007, WaMu and Long Beach together securitized at least $77 billion in subprime loans. (Senate Report at 2-3) In connection with the hearing, the Subcommittee released a joint memorandum from Chairman Carl Levin and Ranking Member Tom Coburn summarizing the investigation to date into Washington Mutual and the role of high risk home loans in the financial crisis. The memorandum contained the following findings of fact, which this Report reaffirms. 1. High Risk Lending Strategy. Washington Mutual (WaMu) executives embarked upon a High Risk Lending Strategy and increased sales of high risk home loans to Wall Street, because they projected that high risk home loans, which generally charged higher rates of interest, would be more profitable for the bank than low risk home loans. Shoddy Lending Practices. WaMu and its affiliate, Long Beach Mortgage Company (Long Beach), used shoddy lending practices riddled with credit, compliance, and operational deficiencies to make tens of thousands of high risk home loans that too often contained excessive risk, fraudulent information, or errors. Steering Borrowers to High Risk Loans. WaMu and Long Beach too often steered borrowers into home loans they could not afford, allowing and encouraging them to make low initial payments that would be followed by much higher payments, and presumed that rising home prices would enable those borrowers to refinance their loans or sell their homes before the payments shot up. Polluting the Financial System. WaMu and Long Beach securitized over $77 billion in subprime home loans and billions more in other high risk home loans, used Wall Street firms to sell the securities to investors worldwide, and polluted the financial system with mortgage backed securities which later incurred high rates of delinquency and loss.

2.

3.

4.

{D0208959.1 }

5.

Securitizing Delinquency-Prone and Fraudulent Loans. At times, WaMu selected and securitized loans that it had identified as likely to go delinquent, without disclosing its analysis to investors who bought the securities, and also securitized loans tainted by fraudulent information, without notifying purchasers of the fraud that was discovered. Destructive Compensation. WaMus compensation system rewarded loan officers and loan processors for originating large volumes of high risk loans, paid extra to loan officers who overcharged borrowers or added stiff prepayment penalties, and gave executives millions of dollars even when their High Risk Lending Strategy placed the bank in financial jeopardy. (Senate Report at 5051) MANAGEMENT KNEW THAT IT WAS IMPOSING UNSUSTAINABLE RISK AND HARM ON THE COMPANY

6.

For most of the five-year period reviewed by the Subcommittee, WaMu was led by its longtime Chairman of the Board and Chief Executive Officer (CEO) Kerry Killinger who joined the bank in 1982, became bank president in 1988, and was appointed CEO in 1990. Other key executives include: President Steve Rotella who joined the bank in January 2005; Chief Financial Officer Tom Casey; President of the Home Loan Division David Schneider who joined the bank in July 2005; and General Counsel Faye Chapman. David Beck served as Executive Vice President in charge of the banks Capital Markets Division, oversaw its securitization efforts, and reported to the head of Home Loans. Anthony Meola headed up the Home Loans Sales effort. Jim Vanasek was WaMus Chief Credit Officer from 1999 until 2004, and was then appointed its Chief Risk Officer, a new position, from 2004-2005. After Mr. Vanaseks retirement, Ronald Cathcart took his place as Chief Risk Officer, and headed the banks newly organized Enterprise Risk Management Division, serving in that post from 2005 to 2007. (Senate Report at 52) In 2004, before WaMu implemented its High Risk Lending Strategy, the Chief Risk Officer Jim Vanasek, expressed internally concern about the unsustainable rise in housing prices, loosening lending standards, and the possible consequences. On September 2, 2004, just months before the formal presentation of the High Risk Lending Strategy to the Board of Directors, Mr. Vanasek circulated a prescient memorandum to WaMus mortgage underwriting and appraisal staff, warning of a bubble in housing prices and encouraging tighter underwriting. (Senate Report at 65) Mr. Vanasek was the senior-most risk officer at WaMu, and had frequent interactions with Mr. Killinger and the Board of Directors. While his concerns may have been heard, they were not heeded. (Senate Report at 66) Mr. Vanasek told the Subcommittee that, because of his predictions of a collapse in the housing market, he earned the derisive nickname Dr. Doom. But evidence of a housing

{D0208959.1 }

bubble was overwhelming by 2005. Over the prior ten years, housing prices had skyrocketed in an unprecedented fashion . . . . (Senate Report at 66) Despite Mr. Killingers awareness that housing prices were unsustainable, could drop suddenly, and could make it difficult for borrowers to refinance or sell their homes, Mr. Killinger continued to push forward with WaMus High Risk Lending Strategy. (Senate Report at 68) In August 2007, more than a year before the collapse of the bank, WaMus President Steve Rotella emailed CEO Kerry Killinger saying that, aside from Long Beach, WaMus prime home loan business was the worst managed business I had seen in my career. (Senate Report at 86)

MANAGEMENT IGNORED AND AT TIMES EVEN REWARDED SHODDY LENDING PRACTICES AND LOAN FRAUD Perhaps the clearest evidence of WaMus shoddy lending practices came when senior management was informed of loans containing fraudulent information, but then did little to stop the fraud. (Senate Report at 95) Downey and Montebello Fraud Investigations. The most significant example involves an internal WaMu investigation that, in 2005, uncovered substantial evidence of loan fraud involving two top producing loan offices in Southern California. WaMu management was presented with the findings, but failed to respond, leading to the same fraud allegations erupting again in 2007. (Senate Report at 96) Despite the year-long effort put into the investigation, the written materials prepared, the meetings held, and the fraud rates in excess of 58% and 83% at the Downey and Montebello offices, no discernable actions were taken by WaMu management to address the fraud problem in those two offices. No one was fired or disciplined for routinely violating bank policy, no anti-fraud program was installed, no notice of the problem was sent to the banks regulators, and no investors who purchased RMBS securities containing loans from those offices were alerted to the fraud problem underlying their high delinquency rates. (Senate Report at 98) Over the next two years, the Downey and Montebello head loan officers . . . continued to issue high volumes of loans and continued to win awards for their loan productivity, including winning trips to Hawaii as members of WaMus Presidents Club. One of the loan officers even suggested to bank President Steve Rotella ways to further relax bank lending standards. (Senate Report at 98) Questionable compensation practices did not stop in the loan offices, but went all the way to the top of the company. WaMus CEO received millions of dollars in pay, even when his high risk loan strategy began unraveling, even when the bank began to falter, and even when he was asked to leave his post. From 2003 to 2007, Mr. Killinger was

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paid between $11 million and $20 million each year in cash, stock, and stock options. In addition, WaMu provided him with four retirement plans, a deferred bonus plan, and a separate deferred compensation plan. In 2008, when he was asked to leave the bank, Mr. Killinger was paid $25 million, including $15 million in severance pay. (Senate Report at 153) In February 2008, the Human Resources Committee approved a bonus plan for executive officers that tried to shield the executive bonuses from any impact caused by WaMus mounting mortgage losses. . . . WaMu filed its executive compensation plan with the SEC, as required. The exclusion of mortgage related losses and expenses in the plan attracted notice from shareholders and the press. . . . Mr. Killinger sought to respond to the controversy in a way that would placate investors without alienating executives. His solution was to eliminate bonuses for the top five executives, and make cash payments to the other executives, without making that fact public. . . . In other words, WaMu would announce publicly that none of the Executive Committee members would receive bonuses in 2008, while quietly paying retention grants rather than bonuses to the next tier of executives. . . . There would be no disclosure of the retention cash payments. (Senate Report at 154)

WAMUS PRE-PETITION STOCK PRICE (SUGGESTING SOLVENCY) WAS BASED ON MARKET MISINFORMATION At the April 16, 2010 hearing of the Subcommittee, Senator Coburn had the following exchange with Inspectors General Thorson and Rymer, which explains in part why OTS failed as regulator to address WaMus harmful lending policies: Senator Coburn: As I sat here and listened to both the opening statement of the Chairman and to your statements, I come to the conclusion that actually investors would have been better off had there been no OTS because, in essence, the investors could not get behind the scene to see what was essentially misled by OTS because they had faith the regulators were not finding any problems, when, in fact, the record shows there are tons of problems, just there was no action taken on it. . . . I mean, we had people continually investing in this business on the basis as a matter of fact, they raised an additional $7 billion before they collapsed, on the basis that OTS said everything was fine, when, in fact, OTS knew everything was not fine and was not getting it changed. Would you agree with that statement or not? Mr. Thorson: Yes, sir. I think . . . basically assigning a satisfactory rating when conditions are not is contradictory to the very purpose for which regulators use a rating system. I think that is what you are saying. Senator Coburn: Any comments on that Mr. Rymer? Mr. Rymer: I would agree with Mr. Thorson . . . . (Senate Report at 208)

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MANAGEMENTS WHEREWITHAL TO SATISFY JUDGMENTS ON ESTATE CLAIMS (IN ADDITION TO D&O INSURANCE) Altogether, from 2003 to 2008, Washington Mutual paid Mr. Killinger nearly $100 million, on top of multi-million-dollar corporate retirement benefits. (Senate Report at 153)

TARGETS FOR AIDING AND ABETTING LIABILITY: INVESTMENT BANKS A. General Findings Another group of financial institutions active in the mortgage market were securities firms, including investment banks, broker-dealers, and investment advisors. These security firms did not originate home loans, but typically helped design, underwrite, market, or trade securities linked to residential mortgages, including RMBS and CDO securities that were at the heart of the financial crisis. Key firms included Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley, and the asset management arms of large banks, including Citigroup, Deutsche Bank, and JPMorgan Chase. (Senate Report at 38) Investment banks were a major driving force behind the structured finance products that provided a steady stream of funding for lenders to originate high risk, poor quality loans and that magnified risk throughout the U.S. financial system. The investment banks that engineered, sold, traded, and profited from mortgage related structured finance products were a major cause of the financial crisis. (Senate Report at 320) If an investment bank agrees to act as an underwriter for the issuance of a new security to the public, such as an RMBS, it typically purchases the securities from the issuer, holds them on its books, conducts the public offering, and bears the financial risk until the securities are sold to the public. . . . Underwriters help issuers prepare and file the registration statements filed with the SEC, which explain to potential investors the purpose of a proposed public offering, the issuers operations and management, key financial data, and other important facts. . . . If a security is not offered to the general public, it can still be offered to investors through a private placement. Investment banks often act as the placement agent, performing intermediary services between those seeking to raise money and investors. Placement agents often help issuers design the securities, produce the offering materials, and market the new securities to investors. . . . Whether acting as an underwriter or placement agent, a major part of the investment banks responsibility is to solicit customers to buy the new securities being offered. Under the securities laws, investment banks that act as an underwriter or placement agent for new securities are liable for any material misrepresentation or omission of a material

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fact made in connection with a solicitation or sale of those securities to investors. (Senate Report at 322-23) Broker-dealers also have affirmative disclosure obligations to their clients. With respect to the duties of a broker-dealer, the SEC has held: [W]hen a securities dealer recommends a stock to a customer, it is not only obligated to avoid affirmative misstatements, but also must disclose material adverse facts to which it is aware. That includes disclosure of adverse interests such as economic self-interest that could have influenced its recommendation. (Senate Report at 324, quoting In the Matter of Richmark Capital Corporation, Securities Exchange Act Rel. No. 48758 (Nov. 7, 2003)) Investment banks that designed, obtained credit ratings for, underwrote, sold, managed, and serviced CDO securities, made money from the fees they charged for these and other services. Investment banks reportedly netted from $5 to $10 million in fees per CDO. Some also constructed CDOs to transfer the financial risk of poorly performing RMBS and CDO securities from their own holdings to the investors they were soliciting to buy the CDO securities. By selling the CDO securities to investors, the investment banks profited not only from the CDO sales, but also eliminated possible losses from the assets removed from their warehouse accounts. In some instances, unbeknownst to the customers and investors, the investment banks that sold them CDO securities bet against those instruments by taking short positions through single name CDS contracts. Some even took the short side of the CDO they constructed, and profited when the referenced assets lost value, and the investors to whom they had sold the long side of the CDO were required to make substantial payments to the CDO. (Senate Report at 328-29) From 2000 to 2007, Washing Mutual and Long Beach securitized at least $77 billion in subprime and home equity loans. WaMu also sold or securitized at least $115 billion in Option ARM loans. Between 2000 and 2008, Washington Mutual sold over $500 billion in loans to Fannie Mae and Freddie Mac, accounting for more than a quarter of every dollar in loans WaMu originated. . . . WaMu and Long Beach worked with a variety of investment banks to arrange, underwrite, and sell its RMBS securitizations, including Bank of America, Credit Suisse, Deutsche Bank, Goldman Sachs, Lehman Brothers, Merrill Lynch, Royal Bank of Scotland, and UBS. (Senate Report at 116-118) Goldman Sachs From 2004 to 2008, Goldman was a major player in the U.S. mortgage market. In 2006 and 2007 alone, it designed and underwrote 93 RMBS and 27 mortgage related CDO securitizations totaling about $100 billion, bought and sold RMBS and CDO securities on behalf of its clients, and amassed its own multi-billion-dollar proprietary mortgage related holdings. (Senate Report at 8-9) WaMu, Long Beach, and Goldman had collaborated on at least $14 billion in loan sales and securitizations. In February 2006, Long Beach had a $2 billion warehouse account with Goldman, which was the largest of Goldmans warehouse accounts at that time. (Senate Report at 513)

B.

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Long Beach was known within the industry for originating some of the worst performing subprime mortgages in the country. . . . Nevertheless, in May 2006, Goldman acted as co-lead underwriter with WaMu to securitize about $532 million in subprime second lien mortgages originated by Long Beach. (Senate Report at 513-14) The evidence discloses troubling and sometimes abusive practices which show, first, that Goldman knowingly sold high risk, poor quality mortgage products to clients around the world, saturating financial markets with complex, financially engineered instruments that magnified risk and losses when their underlying assets began to fail. Second, it shows multiple conflicts of interest surrounding Goldmans securitization activities, including its use of CDOs to transfer billions of dollars of risk to investors, assist a favored client making a $1 billion gain at the expense of other clients, and produce its own proprietary gains at the expense of the clients to whom Goldman sold its CDO securities. (Senate Report at 476) Under Goldmans sales policies and procedures, an affirmative action by Goldman personnel to sell a specific investment to a specific customer constituted a recommendation of that investment. (Senate Report at 476) In 2006 and 2007, when selling subprime CDO securities to customers, Goldman did not always disclose that the securities contained or referenced assets Goldman believed would perform poorly, and that the securities themselves were rapidly losing value. Goldman also did not disclose that the firm had built a large net short position betting that CDO and RMBS securities similar to the ones it was selling would lose value. (Senate Report at 476) Throughout 2007, Goldman twice built up and cashed in sizeable mortgage related short positions. At its peak, Goldmans net short position totaled $13.9 billion. Overall in 2007, its net short position produced record profits totaling $3.7 billion for Goldmans Structured Products Group, which when combined with other mortgage losses, produced record net revenues of $1.1 billion for the Mortgage Department as a whole. Throughout 2007, Goldman sold RMBS and CDO securities to its clients without disclosing its own net short position against the subprime market or its purchase of CDS contracts to gain from the loss in value of some of the very securities it was selling to its clients. (Senate Report at 9)

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C.

Deutsche Bank Both Goldman Sachs and Deutsche Bank underwrote securities using loans from subprime lenders known for issuing high risk, poor quality mortgages, and sold risky securities to investors across the United States and around the world. They also enabled the lenders to acquire new funds to originate still more high risk, poor quality loans. Both sold CDO securities without full disclosure of the negative views of some of their employees regarding the underlying assets and, in the case of Goldman, without full disclosure that it was shorting the very CDO securities it was marketing, raising questions about whether Goldman complied with its obligation to issue suitable investment recommendations and disclose material adverse interests. The case studies also illustrate how these two investment banks continued to market new CDOs in 2007, even as U.S. mortgage delinquencies intensified, RMBS securities lost value, the U.S. mortgage market as a whole deteriorated, and investors lost confidence. Both kept producing and selling high risk, poor quality structured finance products in a negative market, in part because stopping the CDO machine would have meant less income for structured finance units, smaller executive bonuses, and even the disappearance of CDO desks and personnel, which is what finally happened. (Senate Report at 11) In the face of a deteriorating market, Deutsche Bank aggressively sold a $1.1 billion CDO, Gemstone 7, which included RMBS securities that the banks top CDO trader had disparaged as crap and pigs, and which produced $1.1 billion of high risk, poor quality securities that are now virtually worthless. (Senate Report at 333) A substantial portion of the cash and synthetic assets included in Gemstone 7, 30% in all, involved subprime residential mortgages issued by three subprime lenders, Long Beach, Fremont, and New Century, all known for issuing poor quality loans and securities. (Senate Report at 358) Email [from Deutsche Banks top CDO trader] responding to a hedge fund trader at Mast Capital: Long Beach is one of the weakest names in the market. (Senate Report at 339) On another occasion in March 2007, a Moodys analyst emailed a colleague about problems she was having with someone at Deutsche Bank after Moodys suggested adjustments to the deal: [The Deutsche Bank investment banker] is pushing back dearly saying that the deal has been marketed already and that we cam back too late with this discovery. . . . She claims its hard for them to change the structure at this point. (Senate Report at 280)

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TARGETS FOR AIDING AND ABETTING LIABILITY: RATINGS AGENCIES Between 2004 and 2007, Moodys and S&P issued credit ratings for tens of thousands of U.S. residential mortgage backed securities (RMBS) and collateralized debt obligations (CDO). Taking in increasing revenue from Wall Street firms, Moodys and S&P issued AAA and other investment grade credit ratings for the vast majority of those RMBS and CDO securities, deeming them safe investments even though many relied on high risk home loans. In late 2006, high risks mortgages began incurring delinquencies and defaults at an alarming rate. Despite signs of a deteriorating mortgage market, Moodys and S&P continued for six months to issue investment grade ratings for numerous RMBS and CDO securities. (Senate Report at 6) Traditionally, investments holding AAA ratings have had a less than 1% probability of incurring defaults. But in 2007, the vast majority of RMBS and CDO securities with AAA ratings incurred substantial losses; some failed outright. Analysts have determined that over 90% of the AAA ratings given to subprime RMBS securities originated in 2006 and 2007 were later downgraded by the credit rating agencies to junk status. In the case of Long Beach, 75 out of 75 AAA rated Long Beach securities issued in 2006, were later downgraded to junk status, defaulted, or withdrawn. (Senate Report at 6) Inaccurate AAA ratings introduced risk into the U.S. financial system and constituted a key cause of the financial crisis. In addition, the July mass downgrades, which were unprecedented in number and scope, precipitated the collapse of the RMBS and CDO secondary markets, and perhaps more than any other single event triggered the beginning of the financial crisis. (Senate Report at 6) Evidence gathered by the Subcommittee shows that the credit rating agencies were aware of problems in the mortgage market, including an unsustainable rise in housing prices, the high risk nature of the loans being issued, lax lending standards, and rampant mortgage fraud. Instead of using this information to temper their ratings, the firms continued to issue a high volume of investment grade ratings for mortgage backed securities. (Senate Report at 7) It is not surprising that credit rating agencies at times gave into pressure from investment banks and accorded them undue influence in the ratings process. . . . Ratings shopping inevitably weakens standards as each credit rating agency seeks to provide the most favorable rating to win business. It is a conflict of interest that results in a race to the bottom . . . . (Senate Report at 287) "Internal Moodys and S&P emails further demonstrate that senior management and ratings personnel were aware of the deteriorating mortgage market and increasing credit risk. In June 2005, for example, an outside mortgage broker who had seen the head of S&Ps RMBS Group, Susan Barnes, on a television program sent her an email warning

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about the seeds of destruction in the financial markets. He noted that no one at the time seemed interested in fixing the looming problem: I have contacted the OTS, FDIC and others and my concerns are not addressed. I have been a mortgage broker for the past 13 years and I have never seen such a lack of attention to loan risk. I am confident our present housing bubble is not from supply and demand of housing, but from money supply. In my professional opinion the biggest perpetrator is Washington Mutual. 1) No income documentation loans. 2) Option ARMS (negative amortization) . . . 5) 100% financing loans. I have seen instances where WAMU approved buyers for purchase loans; where the fully indexed interest only payments represented 100% of borrowers gross monthly income. We need to stop this madness!!! (Senate Report at 269)

TARGETS FOR AIDING AND ABETTING LIABILITY: OUTSIDE APPRAISERS On November 1, 2007, the New York Attorney General issued a complaint against WaMus appraisal vendors, LSI and eAppraiseIT, alleging fraud and collusion with WaMu to systematically inflate real estate values. (Senate Report at 189) The OTS investigation uncovered many instances of improper appraisals. After reviewing 225 loan files, the OTS appraisal expert found that [n]umerous instances were identified where, because of undue influence on the [outside] appraiser, values were increased without supporting documentation. OTS also found that WaMu had violated the agencys appraisal regulations by failing to comply with appraisal independence procedures after they outsourced the function. The OTS investigation concluded that WaMus appraisal practices constituted unsafe or unsound banking practices. The OTS investigation also concluded that WaMu was not in compliance with the Uniform Standards of Professional Appraisal Practice and other minimum appraisal standards. (Senate Report at 190)

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10

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE __________________________________________ In re: ) ) WASHINGTON MUTUAL, INC., et al., ) ) Debtors ) ) ) CERTIFICATE OF SERVICE I, Mark T. Hurford, of Campbell & Levine, LLC, hereby certify that on January 4, 2012, I caused a copy of the Objection of the Consortium of Trust Preferred Security Holders to Debtors Motion for Approval of Disclosure Statement for the Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code to be served upon the attached service list via First Class U.S. Mail.

Chapter 11 Case No. 08-12229 (MFW) Jointly Administered

Dated: January 4, 2012 /s/ Mark T. Hurford Mark T. Hurford (No. 3299)

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In re: Washington Mutual, Inc., et al 08-12229 Service List

Mark David Collins, Esquire Richards, Layton & Finger, PA One Rodney Square 920 N. King Street Wilmington, DE 19801

Adam G. Landis, Esquire Landis Rath & Cobb LLP 919 Market Street, Suite 1800 P.O. Box 2087 Wilmington, DE 19899

Peter Calamari, Esquire Quinn Emanual Urquhart & Sullivan, LLP 55 Madison Avenue, 22nd Floor New York, NY 10010

David B. Stratton, Esquire Pepper Hamilton LLP 1313 N. Market Street, Suite 5100 P.O. Box 1709 Wilmington, DE 19899-1709

Fred S. Hodara, Esquire Akin Gump Strauss Hauer & Feld LLP One Bryant Park New York, NY 10036-6745

Brian Rosen, Esquire Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153

Robert A. Sacks, Esquire Sullivan & Cromwell LLP

125 Broad Street New York, NY 10004

Thomas R. Califano, Esq. DLA Piper LLP (US) 1251 Avenue of the Americas New York, NY 10020

Charles Edward Smith, Esquire Washington Mutual, Inc. 925 Fourth Avenue Seattle, Washington 98104

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Jane Leamy, Esquire Office of the U.S. Trustee for the District of Delaware 844 King Street, Suite 2207, Lockbox 35 Wilmington, Delaware 19899-0035

Neil R. Lapinski, Esquire Elliott Greenleaf 1105 Market Street, Suite 1700 Wilmington, Delaware 19801

William P. Bowden, Esquire Ashby & Geddes, P.A. 500 Delaware Avenue, 8th Floor P.O. Box 1150 Wilmington, DE 19899

M. Blake Cleary, Esquire Young Conaway Stargatt & Taylor, LLP 1000 West Street, 17th Floor Wilmington, DE 19801

Edgar G. Sargent, Esquire Susan Godfrey LLP 1201 Third Avenue, Suite 3800 Seattle, Washington 98101

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