Posted on Thursday, February 17, 2011
The Securities and Exchange Commission (SEC) has charged three former executives at IndyMac Bancorp with securities fraud for misleading investors about the lender’s failing financial condition.
The executives, former CEO Michael Perry, and former CFOs A. Scott Keys and S. Blair Abernathy, allegedly filed false and misleading disclosures about the financial stability of IndyMac and IndyMac Bank F.S.B.
The SEC alleges that the three executives regularly received internal reports about the company’s deteriorating capital and liquidity positions in 2007 and 2008 but did not disclose that information to investors and instead sold millions of dollars in new stock.
“These corporate executives made false and misleading disclosures about IndyMac at a time when the company’s financial condition was rapidly deteriorating. 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,” said Lorin L. Reisner, deputy director of the SEC’s division of enforcement.
According to the lawsuit, which was filed in the U.S. District Court for the central district of California, Perry and Keys defrauded new and existing IndyMac shareholders by making false and misleading statements about the company’s financial condition and offered $100 million in new stock to investors.
According to a statement released by the SEC, “The SEC further alleges that Perry knew that rating downgrades in April 2008 on bonds held by IndyMac Bank had exacerbated its capital and liquidity positions to the extent that IndyMac had no choice but to suspend future preferred dividend payments by no later than May 2, 2008.”
The statement continues, “This material information was not disclosed in IndyMac’s ongoing stock offerings. 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 complaint alleges that Abernathy replaced Keys in April 2008 and made similar false and misleading statements despite knowing the company was foundering.
The SEC also alleges that in summer 2007 while serving as IndyMac’s EVP in charge of specialty lending, Abernathy made false and misleading statements about the quality of the loans in six IndyMac offerings of residential mortgage-backed securities totaling $2.5 billion. Abernathy received internal reports that revealed 12 to 18 percent of IndyMac’s loans contained misrepresentations, but he failed to disclose that information.
Abernathy settled the SEC’s charges without admitting or denying fault. He paid a $100,000 penalty, $25,000 in disgorgement, and prejudgment interest of $1,592.26.
Keys and Perry are charged with knowingly violating antifraud provisions of the Securities act of 1933 and the Securities Exchange Act of 1934, and aiding and abetting IndyMac’s violations of its periodic reporting requirements under the Exchange Act and rules.
The SEC’s complaint against Perry and Keys seeks permanent injunctive relief, an officer and director bar, disgorgement of ill-gotten gains with prejudgment interest, and a financial penalty.
By: Joy Leopold, DSNEWS