My colleague Karen Freifeld was in Manhattan State Supreme Court Thursday when Bank of America counsel Theodore Mirvis of Wachtell, Lipton, Rosen & Katz stood up to argue for the dismissal of Walnut Place’s suit demanding millions of dollars in put-backs in two Countrywide mortgage-backed securities trusts. Everyone who follows MBS litigation knows that Walnut, represented by Grais & Ellsworth, is the leading objector to BofA’s embattled $8.5 billion settlement with Countrywide MBS investors. But Freifeld was the first journalist to pick up Mirvis’s big disclosure: Walnut Place, he told Justice Barbara Kapnick, is actually the distressed debt hedge fund Baupost.

Late Friday, Baupost informed its partners (as the fund calls clients) that it is indeed Walnut Place. But according to a source who disclosed the memo’s content to Reuters, the hedge fund said it is litigating to protect its clients’ investment — and not, as a blog suggested Thursday night, because it has shorted Bank of America stock.

“From time to time and for a variety of reasons [Baupost] forms legal entities to consolidate investments. Walnut Place is such an example,” the Baupost memo said. “It holds certain of our residential mortgage-backed securities investments. Walnut Place has initiated legal actions against the originator of the loans underlying those securities because we believe there have been egregious deficiencies in the underwriting of mortgages. That litigation is intended to protect the interests of our investors and is ongoing.”

The hedge-fund blog Zero Hedge speculated Thursday night that Baupost, as Walnut Place, may be fighting the proposed BofA MBS settlement because it has shorted Bank of America stock and taken a long position on MBIA, which is also engaged in do-or-die MBS litigation with BofA. The Baupost client memo — without naming the Zero Hedge blog — firmly rejected that assertion as “unfounded and completely false.”

“We have on occasion owned a small amount of default protection on Bank of America debt as part of our overall portfolio hedging strategy through which we hold credit default swaps on a diverse group of financial institutions and other corporate issuers,” the memo said. “We currently have no long or short position in equity, corporate debt, or credit default swaps of Bank of America or MBIA.”