Former IndyMac Chief Charged With Fraud

In the formerly Pasadena, Calif.-based company’s 2007 annual report, investors were advised that IndyMac expected to return to profitability and make preferred dividend payments in 2008 without having to raise new capital.

But just two weeks later, then-CEO Michael W. Perry and chief financial officer A. Scott Keys knew that IndyMac had started raising capital and was scrambling to maintain its capital position, according to a lawsuit filed by the Securities and Exchange Commission in U.S. District Court for the Central District of California.

“Specifically, Perry and Keys regularly received information that IndyMac’s financial condition was rapidly deteriorating and authorized new stock sales as a result,” the SEC claims. “Yet they fraudulently failed to fully disclose IndyMac’s precarious financial condition in the 2007 annual report and the offering documents for the new stock sales.”

Even though Perry was aware of downgrades to IndyMac bonds in April 2008, materials for ongoing stock offering omitted this fact, the SEC said.

“Perry also failed to disclose in various SEC filings or a May 2008 earnings conference call that IndyMac would not have been ‘well-capitalized’ at the end of its first quarter without departing from its traditional method for risk-weighting subprime assets and backdating an $18 million capital contribution,” the regulator alleges.

Perry and Keys are charged with knowingly violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The government seeks permanent injunctive relief against the two defendants as well as an officer and director bar, disgorgement of ill-gotten gains with prejudgment interest, and a financial penalty.

A third defendant, former CFO S. Blair Abernathy, is accused by the SEC of carrying on the charade after taking the CFO job in April 2008. He additionally is charged with misleading investors on the quality of loans in six IndyMac securitizations for $2.5 billion.

Abernathy, however, settled with the SEC for more than $125,000 without admitting or denying the allegations. He also agreed to an administrative order banning him from appearing or practicing before the SEC as an accountant.

IndyMac Bank F.S.B failed on July 11, 2008. As receiver, the Federal Deposit Insurance Corp. managed the institution until its March 2009 sale to OneWest Bank FSB.

“These corporate executives made false and misleading disclosures about IndyMac at a time when the company’s financial condition was rapidly deteriorating,” Lorin L. Reisner, deputy director of the SEC’s division of enforcement, said in an announcement.