SEC files fraud lawsuit against three former IndyMac executives [Updated]
Targeting executives of the housing boom's biggest stated-income lender, the Securities and Exchange Commission has accused former IndyMac Bancorp Chief Executive Michael W. Perry and two former chief financial officers of defrauding investors at the failed Pasadena savings and loan.
The civil lawsuit, filed Friday in Los Angeles federal court, contends that Perry and former CFOs A. Scott Keys and S. Blair Abernathy misled investors about the crumbling financial condition of IndyMac and its IndyMac Bank operating unit by filing false disclosures with the SEC.
"The three executives regularly received internal reports about IndyMac’s deteriorating capital and liquidity positions in 2007 and 2008, but failed to ensure adequate disclosure of that information to investors as IndyMac sold millions of dollars in new stock," the SEC said in a news release.
[Updated at 3:53 p.m.: Through their attorneys, Perry and Keys said they would contest the lawsuit.
Abernathy settled the suit without admitting or denying the allegations. He agreed to pay more than $125,000 and be suspended for two years from doing accountant work that would go before the SEC.]
IndyMac collapsed in July 2008 after a run on its deposits. It was the first in a series of major bank failures that later included Washington Mutual Inc. and Wachovia Corp. as defaults on risky mortgages threatened to bring down the financial industry and toppled the global economy into a deep recession.
Perry's attorney, D. Jean Veta of Washington, D.C., said the SEC complaint is meritless "Monday morning quarterbacking." The suit makes no sense, Veta said, because Perry was buying IndyMac stock at the time he supposedly was misleading investors.
Perry and IndyMac 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. “It is unfortunate that the SEC today wrongly decided to sue Mike Perry, an extremely capable, hard-working CEO who led IndyMac ... with courage, honesty and integrity."
Keys' defense attorney, Gregory S. Bruch of Washington, said: "We will contest this lawsuit and we will win." He said that by February 2008, when his client is accused of wrongdoing, "anyone who read IndyMac's presentations knew how difficult the future was for that bank."
"The SEC is dead wrong here," Bruch said. "I don't think there is the slightest evidence that Mr. Keys defrauded anybody."
IndyMac, a spinoff from Calabasas mortgage giant Countrywide Financial Corp., had specialized in so-called alt-A mortgages. These were made to borrowers with decent credit but whose loans had risky characteristics -- most often that they lacked documentation of borrowers' incomes and assets.
The SEC previously settled lawsuits against former executives of two other high-risk lenders based in Southern California: the bankrupt Irvine subprime specialist New Century Financial Corp. and Countrywide, which was the largest mortgage originator in the country. The executives did not deny or admit allegations that they deceived investors about the condition of their companies.
In the largest settlement, Countrywide co-founder Angelo Mozilo paid a record $22.5-million fine, was barred for life from serving as an officer or director of a public company and agreed to return $45 million in what the SEC called ill-gotten gains.
Bank of America Corp., which acquired Countrywide as it skidded toward insolvency in 2008, paid the $45 million (but not the fine) for Mozilo, saying it had assumed that liability when it took over Countrywide.
-- E. Scott Reckard
Photo: Customers line up at an Encino branch after IndyMac's failure in July 2008. Credit: Karen Tapia-Andersen / Los Angeles Times.