California mulls probing senator over IndyMac crash

WASHINGTON (Reuters) - California's attorney general is reviewing a request by former employees of IndyMac Bancorp Inc to investigate whether a New York senator triggered the bank's collapse by releasing confidential information.

At issue is a much-publicized letter that Chuck Schumer, a Democrat, sent in June to the Federal Deposit Insurance Corp (FDIC) and Office of Thrift Supervision (OTS) questioning the company's ability to survive.

The FDIC took control of IndyMac on July 11 after depositors withdrew more than $1.3 billion over 11 days. It was the third-largest bank failure in U.S. history. At the time, OTS Director John Reich blamed Schumer's letter for causing the run on the bank.

In a letter to Attorney General Jerry Brown last week, 51 former IndyMac workers wrote: "From the day (Schumer's) letter was made public on June 26 until the closure of the bank, a run on the bank took place and the failure became inevitable."

Brown's spokeswoman Christine Gasparac said on Wednesday that his office was reviewing the letter and that a decision on whether to act on it could be made as early as next week.

IndyMac is based in Pasadena, California.

After IndyMac's collapse, Schumer accused the OTS of allowing IndyMac's lending practices to slip. IndyMac specialized in a type of mortgage that often required minimal documents from borrowers.

Copies of the employee letter were distributed to the press by CRC Public Relations whose clients include the National Republican Congressional Committee, National Republican Senatorial Committee and the Republican National Committee.

CRC, based in Alexandria, Virginia, was also linked to a company that published a book questioning 2004 Democratic presidential candidate John Kerry's Vietnam service on a swift boat.

Schumer spokesman Brian Fallon questioned the motivation behind the letter.

"It certainly raises eyebrows that the firm promoting this letter is the same outfit that fueled the Swift Boat attacks and does work for the RNC," Fallon said.

Schumer chairs the Joint Economic Committee, which has members from the Senate and House of Representatives.

Schumer and other senior Democrats, such as Senate Banking Committee Chairman Christopher Dodd, have been highly critical of Republicans and the Bush White House for not doing enough to help distressed homeowners.

When Congress returns next month, the banking committee is expected to hold a hearing to examine IndyMac's failure.

(Additional reporting by Bernie Woodall in Los Angeles; Editing by Toni Reinhold)