California won't investigate NY senator on IndyMac

LOS ANGELES (Reuters) - California will not investigate claims by former employees of IndyMac Bancorp Inc that a New York senator triggered the bank’s collapse by releasing confidential information, the attorney general’s office said on Friday.

Customers wait outside the Encino branch of IndyMac Bank in Los Angeles on July 17, 2008. REUTERS/Phil McCarten

“While we deeply regret the circumstances surrounding IndyMac’s failure, we believe that there is insufficient evidence for us to investigate Senator Schumer at this time,”

special assistant California attorney general Thomas Greene said in a letter dated Thursday.

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

Green said in his letter that “while Senator Schumer’s statements may have accelerated public concern about IndyMac’s financial condition, we do not believe that we can prove that they caused the bank’s failure.”

The former IndyMac employees also claimed that Schumer made false statements, which would have broken California law regarding financial statements. California Attorney General Jerry Brown’s office did not agree.

Green wrote: “We have no reason to believe that Senator Schumer’s statements were false.”

Brown’s office also said it appeared that Schumer’s letter contained information from publicly available sources, including IndyMac’s own quarterly filings.

The letter said the U.S. Constitution protects Schumer’s statements because he is a member of Congress and was speaking as such.

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.”

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.

Jan Seely of the group IndyMac Employees for Justice was not available for comment.

Reporting by Bernie Woodall; Editing by Toni Reinhold