* Judge dismisses most of case against ex-IndyMac execs
* Disclosures from 2008 at issue
* SEC has faced pressure to bring financial-crisis cases
* Decision highlights hurdles SEC faces
By Aruna Viswanatha
WASHINGTON, May 22 The U.S. Securities and
Exchange Commission was dealt a setback in its cases tied to the
financial collapse when a federal judge dismissed large parts of
its case against former executives at failed mortgage lender
In a verbal order entered on Monday and released as a
transcript on Tuesday, U.S. District Judge Manuel Real gave an
extensive explanation for siding with the defendants and
rejecting many of the SEC's allegations in the case.
The lawsuit is one of dozens of cases the SEC has brought
against executives at notable firms for conduct that allegedly
fueled the financial crisis.
The underlying theme in the IndyMac case, as well as other
cases, is that executives failed to adequately disclose risks as
problems emerged in 2007 and 2008.
The SEC has sued former executives at mortgage finance
agencies Fannie Mae and Freddie Mac on
similar grounds, alleging that six former top officials approved
misleading statements claiming the companies had minimal
holdings of higher-risk mortgage loans, including subprime
In the IndyMac case, the SEC in February 2011 sued the
bank's former chief executive Michael Perry and former finance
chief Scott Keys.
The SEC is accusing them of securities fraud and said they
withheld negative forecasts and misled investors in 2008 about
the bank's capital raising efforts as the bank's financial
But the disclosures were neither false nor misleading, Real
The SEC had alleged, for example, that the bank failed to
disclose an internal forecast that showed the bank's capital
ratio could fall below a 10 percent threshold required by
But firms were not required to disclose all internal
projections, Real said.
The SEC also accused the executives of misleading investors
about a stock purchase program and hiding the fact that it was
being used to raise capital.
Real said IndyMac had disclosed the program in other parts
of the 10-K filing at issue.
The SEC also alleged IndyMac made misleading statements
about its liquidity, but the statements were true because they
clearly only referred to 2007, Real said.
"Predictive statement are just what the name implies:
Predictions. As such, any optimistic projections contained in
such statements are necessarily contingent," Real said.
An SEC spokesman said the agency is reviewing the decision.
PRESSURE TO BRING CASES
Top administration officials have said much of the financial
crisis was caused by greed and recklessness, not necessarily
Real's ruling appears to underscore such an argument.
"I think the SEC has felt extraordinary pressure to bring
cases arising out of the financial crisis," said Gregory Bruch,
a lawyer at Willkie Farr & Gallagher who represented Keys in the
case. "I can't speak to the merits of any other case, but
generally, that pressure has resulted in decisions they will
regret in the long run."
To be sure, the ruling is just one within a larger case, and
has no direct impact on other cases the SEC has brought.
"I think the fairest assessment (of the SEC's record) is
that the record is mixed," said Andrew Vollmer, a former deputy
general counsel at the SEC who is now a lawyer at Wilmer Cutler
Pickering Hale and Dorr.
"The commission has brought some good cases, well-grounded
cases, and I think they have brought some other cases where they
have been criticized," he said.
The ruling does not end the SEC's case against Perry, since
charges related to two additional securities filings are still
scheduled for trial next month.
"We still have a trial, and I just view it as a narrowing of
the evidence," said Donald Searles, a senior trial attorney in
the Los Angeles regional office of the SEC who is litigating the
case. "Each of the filings stands on their own."
Even minor details, according to the Monday ruling, the SEC
Regulators had accused the executives of withholding
information about deferring dividend payments, for example. But
the bank disclosed the information within two business days of a
board vote on the issue, Real said, which fell within the
And he rejected the SEC's ability to get any disgorgement in
the case, since both Perry and Keys sold no stock in the years
at issue, received no bonus, and lost the value of their stock
holdings when the company filed for bankruptcy, Real said.
The Federal Deposit Insurance Corp also sued Perry in a
parallel case, and that litigation is still pending.
The SEC case is Securities and Exchange Commission v.
Michael W. Perry and A. Scott Keys, U.S. District Court for the
Central District of California, case No. 11-cv-01309.