Funds Fight Northwest Disclosure Ruling

Three hedge funds have asked a federal bankruptcy judge to reverse a decision requiring them to disclose trading data about their interests in Northwest Airlines Corp.

Anchorage Capital Group LLC, Latigo Partners LP and Seneca Capital filed a motion late Thursday asking Judge Allan Gropper to overturn his Feb. 26 ruling that requires all members of an ad hoc committee of equity holders to publicly disclose when they bought shares and claims and for how much.

A lawyer for the group has said it has 15 to 17 members and collectively holds a 27 percent stake in Northwest, the nation's fifth-largest airline.

Lawyers for the hedge funds argued that the committee formed in the case is not a committee in the legal sense of the word.

They said in court papers that it was more of a consortium, so it should be exempt from the bankruptcy rule that requires parties acting as a group to file information about their financial stake and trading in the debtor's equity and claims.

"The members regrettably ascribed the sobriquet of 'committee' to their agreement to pool resources in aid of their participation in these cases," lawyers for the investors argued. "The distinction is semantic, because the 'ad hoc committee' did not function as a 'committee' in the traditional sense but instead like a group of entities economically motivated by the need for joint representation."

Gropper's ruling in part had addressed the argument whether the committee fit the legal definition of a committee.

"It is the 'Ad Hoc Committee' that has moved for the appointment of an official shareholders' committee and has been actively litigating discovery issues in numerous hearings and conferences before the court," Gropper wrote in his opinion. "The law firm does not purport to represent the separate interests of any committee member; it takes instruction from the committee as a whole and represents one entity for purposes of the rule."

The hedge funds argued that Gropper's decision would "chill the market for secondary market trading in securities of bankrupt companies."

They also argue it unfairly favors larger investors by forcing greater disclosure on smaller investors who may need to pool resources in order to be represented as groups in restructuring cases. The disclosure rule applies only to those who act as a group.

A hearing date was not set for the motion filed with the court Thursday evening.

On Wednesday, a lawyer for the ad hoc committee, David Rosner, argued in court that the committee should be allowed to file the trading data confidentially with the court. The judge said he would likely rule before the end of this week on that motion.

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