The U.S. Securities and Exchange Commission (SEC) has sued a former CEO and two former CFOs of failed mortgage lender IndyMac Bankcorp, accusing them of securities fraud.
In separate lawsuits filed in U.S. District Court in California, the SEC has alleged that former IndyMac CEO Michael Perry and former CFO Scott Keys filed false and misleading disclosures about the financial health of the mortgage lender and its IndyMac Bank subsidiary.
Another former IndyMac CFO Blair Abernathy had settled a related SEC lawsuit for $125,000 plus without prejudgment interest, without admitting or denying the allegations. Abernathy was accused by the SEC of making misleading statements about the quality of the loans in six IndyMac offerings of residential mortgage-backed securities totaling $2.5 billion.
As part of the settlement, Abernathy had consented to a suspension from appearing or practicing before the SEC as an accountant. He can apply for reinstatement after two years.
The SEC said all the three executives received internal reports about the deteriorating capital and liquidity positions at the bank in 2007 and 2008 but kept it secret from the public even as the company tapped the market for $100 million in new stock and misled the investors into believing that the bank's financial condition was stable and it was well-capitalized.
Perry, in particular, the SEC alleges, had failed to disclose to investors a credit-rating downgrade on IndyMac's bonds in April 2008 which had further hurt the bank's liquidity.
The SEC is seeking permanent injunctive relief against Perry and Keys. In addition to a financial penalty and restitution of ill-gotten gains, the regulator is seeking to bar Perry and Keys from serving as company officers or directors.
However, the lawyers for Keys and Perry have denied the wrongdoings and said their clients will vigorously challenge the allegations.
While Keys' lawyer Gregory Bruch, a partner at Willkie Farr & Gallagher, said there was no misconduct by his client, Perry's lawyer Jean Veta said the SEC's case is meritless.
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, a partner at Covington & Burling, said.
Both the lawyers said their clients had stocks in the bank and lost lots of money like anybody else when the bank failed.
Abernathy's lawyer Robert Fairbank of Fairbank & Vincent in Los Angeles declined to comment.
IndyMac, which specializes in a type of mortgage that often required minimal documentation from borrowers, failed in 2008, at the height of the financial crisis. Failure of the California-based mortgage lender had cost the Federal Deposit Insurance Corp (FDIC) $12.8 billion. In 2009, the FDIC sold IndyMac to a clutch of private equity firms and hedge funds, including Dune Capital Management, Paulson & Co. and J.C. Flowers & Co.