February 12, 2011 / 12:06 AM / 9 years ago

SEC charges ex-IndyMac execs with fraud

WASHINGTON (Reuters) - A former chief executive of failed mortgage lender IndyMac Bancorp and two former chief financial officers were accused of securities fraud for concealing the bank’s financial condition, U.S. securities regulators said on Friday.

The Securities and Exchange Commission alleged in one lawsuit that former IndyMac CEO Michael Perry and former CFO Scott Keys filed false disclosures about the financial health of the company and its IndyMac Bank subsidiary.

California-based IndyMac, which specialized in a type of mortgage that often required minimal documentation from borrowers, was seized by banking regulators in July of 2008 as the financial crisis gathered steam.

Its failure cost the Federal Deposit Insurance Corp, which stands behind bank deposits, about $12.8 billion.

Another former IndyMac CFO, Blair Abernathy, settled a related SEC lawsuit without admitting or denying the allegations, paying $125,000 plus prejudgment interest.

The SEC alleges that the three executives received internal reports about the deteriorating capital and liquidity positions at the bank in 2007 and 2008. But the SEC said they kept that information under wraps even as the company filed to sell millions of dollars in new stock.

Attorneys for Keys and Perry vowed to vigorously contest the allegations. Both suits were filed in U.S. District Court in California.

“This is a very large bank failure and there is tremendous pressure on the SEC to try to find facts that conform to a narrative that suggests there was misconduct,” said Gregory Bruch, an attorney for Keys. “What they have pleaded here... speaks volumes of the lack of what they found.”

Jean Veta, an attorney for Perry, said the SEC’s case is “meritless.”

Both attorneys said their clients, along with other investors, had stock in the bank and lost a lot of money.

“IndyMac and Mr. Perry were the victims of a bank run and the unprecedented financial tsunami that nobody — not Mr. Perry, not the SEC, nor anybody else — saw coming,” Veta said.

An attorney representing Abernathy declined to comment.


In the lawsuit against Keys and Perry, the SEC says they misled investors about the state of the bank’s finances in its 2007 annual report and in offering materials for the sale of $100 million in new stock.

The SEC said the two signed off on false and misleading financial disclosures suggesting that the bank was well-capitalized and failed to tell investors that $25 to $50 million of the stock sale proceeds would be used as a capital contribution.

Additionally, the SEC alleges that Perry failed to disclose to investors a credit-rating downgrade on IndyMac’s bonds in April 2008 that further hurt the bank’s liquidity.

The SEC’s complaint against Perry and Keys seeks permanent injunctive relief, an officer and director bar, disgorgement of ill-gotten gains with interest, and a financial penalty.

Abernathy, who took over as IndyMac CFO after Keys took a medical leave in April 2008, was also accused by the SEC of making false and misleading statements in offering documents.

The SEC added that while Abernathy served as the bank’s executive vice president in 2007, he made misleading statements about the quality of the loans in six IndyMac offerings of residential mortgage-backed securities totaling $2.5 billion.

In his settlement, the SEC said Abernathy also consented to a suspension from appearing or practicing before the SEC as an accountant. He can apply for reinstatement after two years.

The FDIC sold IndyMac in 2009 to group of private equity firms and hedge funds, including Dune Capital Management and J.C. Flowers & Co.

IndyMac was founded in 1985 by David Loeb and Angelo Mozilo, who also founded Countrywide, another big mortgage lender whose loans helped fuel the housing boom. Countrywide was taken over in 2008, just ahead of IndyMac’s failure, by Bank of America Corp.

Mozilo agreed in October last year to settle SEC charges of deceiving Countrywide investors. Bank of America agreed to pay two-thirds of the $67.5 million penalty.

Reporting by Sarah N. Lynch; Editing by Tim Dobbyn

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