February 11, 2011
The Securities and Exchange Commission charged three former senior-level executives of IndyMac Bancorp with securities fraud on Friday.
The complaint alleges that former CEO Michael Perry and former CFOs A. Scott Keys and S. Blair Abernathy mislead investors about the now-defunct mortgage lender’s deteriorating financial condition.
The SEC alleges that despite knowledge of the bank’s financial instability, the executives participated in the filing of false and misleading disclosures.
“Truthful and accurate disclosure to investors is particularly critical during a time of crisis, and the federal securities laws do not become optional when the news is negative,” Lorin Reisner, deputy director of the SEC’s Division of Enforcement, said in a statement.
IndyMac was taken over by the Federal Deposit Insurance Corporation in July 2008 and later filed for bankruptcy. At the time of its collapse, IndyMac had roughly $19 billion in deposits and $32 billion in assets, making it one of the largest bank failures in U.S. history.
Filed in U.S. District Court in California, the complaint specifically alleges that Perry and Keys were aware that the bank was on shaky financial ground, yet failed to make that public in the bank’s 2007 annual report or in offering materials for a $100 million stock sale.
The complaint also points to early February 2008, when IndyMac projected that it would return to profitability and continue to pay preferred dividends without having to raise new capital.
Despite that public statement, Perry and Keys allegedly knew otherwise and began to raise new capital within two weeks.
As the bank neared collapse later in 2008, the complaint alleges that Perry knew that downgrades to bonds held by the bank would result in the suspension of preferred dividend payments, but the executive never disclosed that information in ongoing stock offerings or SEC filings.
Perry’s lawyer says he did nothing wrong, and called the complaint “completely meritless.”
“It represents the worst kind of Monday morning quarterbacking of business decisions. Mr. Perry did nothing wrong, and he looks forward to proving it in court,” Jean Veta, a partner at Covington & Burling who represents Perry, said in a statement.
The complaint against Abernathy, which was filed separately, alleges that in 2007, Abernathy made false and misleading statements about the quality of the loans in some of the bank’s residential mortgage-backed securities, which he knew contained “misrepresentations.”
Abernathy has agreed to settle with the SEC, paying more than $125,000 in penalties. Abernathy’s attorney Robert Fairbank had no comment.
The SEC is also seeking financial penalties against Perry and Keys.