Investors bent on blocking Washington Mutual Inc.'s Chapter 11 plan - and a $7 billion payday for creditors - have moved to knock results of a court-ordered probe out of consideration Wednesday at the start of a key trial.

What is going to trial is a contest over ownership of $4 billion worth of trust-preferred securities that were caught up in the largest banking collapse in U.S. history, that of Washington Mutual Bank, or WaMu.

Investors in the trust-preferred securities Monday asked that results of a court-ordered probe of WaMu's collapse be ruled out-of-bounds for Judge Mary Walrath when she decides whether the securities belong to the investors, or to JPMorgan Chase & Co.

Court-appointed examiner Joshua Hochberg concluded the investors' claim to the $4 billion trust-preferred securities is a long shot. Hochberg, who is with McKenna Long & Aldridge, swore in no witnesses in his review of the events surrounding WaMu's September 2008 seizure, the investors noted. As a result, they say, Hochberg's report "is comprised entirely of inadmissible hearsay," and shouldn't even be mentioned Wednesday when investors duel Washington Mutual and JPMorgan over the trust-preferred securities.

Washington Mutual, through a spokesman, declined to comment Tuesday on the motion to forbid even a mention of Hochberg's report at the Wednesday hearing.

The trust-preferred dispute is a kick-off event for hearings where Washington Mutual will seek confirmation of its Chapter 11 plan. The plan embodies a settlement with JPMorgan that includes the $4 billion trust-preferred securities.

Investors say they still own the trust-preferred securities, so Washington Mutual's settlement, and Chapter 11 plan, can't go through. Washington Mutual and JPMorgan disagree, contending the trust-preferred securities were rolled up in the deal when JPMorgan bought WaMu's branches, deposits and other assets from regulators.

The distressed debt market is not betting on the trust-preferred investors to win Wednesday. The securities at issue are priced at a little over 3 cents on the dollar, according to data from CRT Capital Group, a firm that makes a market in Washington Mutual debt.

"The market has never held out much hope" investors will prevail, CRT analyst Kevin Starke said Tuesday. Before Hochberg released his findings Nov. 1, the trust-preferred securities enjoyed a brief run-up in price, spurred by expectations the investigator might take a positive view of the investors' claims.

He didn't. While the final call is up to the judge, Starke said, the cards are stacked against investors who claim the trust-preferred securities still belong to them.

Washington Mutual wants to sign away rights to the $4 billion worth of trust-preferred securities as a peace offering with JPMorgan. WaMu's former parent is also giving up billions in tax refunds in a settlement that will pay creditors, with interest, but leave noting for shareholders.

The Seattle bank holding company that lost WaMu to regulators faces opposition to its Chapter 11 plan from a number of sources, including shareholders and some bondholders who debt tracks to WaMu rather than to the parent company. WaMu bondholders owed billions are being offered $355 million to support Washington Mutual's Chapter 11 plan. For anything more, they must look to the Federal Deposit Insurance Corp., which brokered the sale and is in charge of gathering cash for WaMu's creditors.

The debate over the trust-preferred securities is largely a technical one, with investors insisting the formalities count when it comes to handling billions of dollars worth of securities.

Washington Mutual says the formalities were mere ministerial acts, and that the substance of the investment agreement was respected when the trust-preferred securities were rolled into the sale of WaMu.

The securities are linked to a package of mortgages. Investors who bought them were promised they would get the first $4 billion if the mortgages had to be liquidated. However, investors also understood that if WaMu ran into trouble, the trust-preferred securities would, after a series of steps, be used to prop up the thrift. Investors would be left with preferred shares in the parent company, instead.

Washington Mutual says that, in essence, is what happened. With WaMu teetering, and JPMorgan wary of taking it over without some protection, the trust-preferred securities in the investors hands were exchanged for preferred stock.

Investors in the trust-preferred securities say that's the way it was supposed to play out, but certain critical steps were skipped. For one thing, they say, there was no exchange. For another, they say, there was no issuance of preferred stock. So unless WaMu's distress invested regulators with "metaphysical" powers, the trust-preferred securities are still right where they were - in the hands of investors, they argue.

Wednesday's hearing is set up as a legal version of a sudden-death playoff, pitting investors against WaMu's former and existing owners, with $4 billion the prize. Each side has filed a motion for summary judgment, meaning both are claiming the judge can make the call without hearing further evidence.

Walrath doesn't have to rule Wednesday. Starke pointed out. She could say she needs to hear evidence on what actually happened before deciding who gets the goods. In that case, the lawsuit rolls on, and so, most likely, does confirmation.

If the judge rules the trust-preferred securities belong to the investors, Washington Mutual and JPMorgan are likely to appeal. Appeal preserves the possibility of confirmation for Washington Mutual's Chapter 11 plan - as long as JPMorgan doesn't walk away from the settlement - but stretches out the timeline.

A ruling granting summary judgment to Washington Mutual and JPMorgan will likely be fatal to the consortium of trust-preferred securities holders, Starke predicted. Unlike JPMorgan and even Washington Mutual, the investors in the trust-preferred securities don't have multibillion-dollar bankrolls to fund a prolonged court fight, the analyst said.

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