Former IndyMac CEO in U.S. cross hairs for second time

The FDIC suit against Michael Perry seeks to recover $600 million over IndyMac Bank's failure. It comes after the SEC accused him in February of defrauding shareholders.A Federal Deposit Insurance Corp. lawsuit against former IndyMac Bancorp Chairman Michael W. Perry is the agency's second-largest attempt to recover money from bank officials whose approval of risky home loans during the housing boom allegedly caused the institutions to fail.

The negligence suit, filed Wednesday in federal court in Los Angeles, seeks $600 million, a fraction of the $13 billion the deposit-insurance fund lost due to IndyMac Bank's collapse in July 2008. With the FDIC bearing most of the losses, the Pasadena lender that is now owned by hedge-fund billionaires is operating profitably as OneWest Bank.

FOR THE RECORD:
IndyMac: An article in the July 8 Business section about a federal lawsuit filed against former IndyMac Bancorp Chief Executive Michael W. Perry misspelled the last name of his lawyer, Jean Veta, as La Veta in one reference. —


IndyMac, a publicly traded savings and loan, had been the nation's largest supplier of stated-income mortgages, also known as "liar loans," which allowed borrowers to qualify with little or no documentation of their ability to repay.

Perry's lawyers denied that he had any liability. In a statement, they said the FDIC officials are trying to deflect blame from themselves for failing to address the looming financial crisis before it was too late.

"Perry was a prudent, effective CEO who led IndyMac in good faith," said attorney Jean Veta of Washington. "His sound business judgment is confirmed by the fact that the federal banking regulators consistently praised Mr. Perry's leadership of IndyMac during the very same time period at issue in the new meritless lawsuit."

The lawsuit is the second to be filed against Perry by a federal agency. In February, the Securities and Exchange Commission accused him of defrauding shareholders by failing to disclose how badly IndyMac's financial condition was deteriorating in 2007 and 2008. La Veta called that suit meritless as well and said Perry would contest it.

IndyMac failed after a run on deposits. It was the first and by far the largest of the 37 California-based banks and savings and loans seized by regulators since risky mortgages triggered the global financial crisis.

The only larger FDIC suit to date, a gross negligence action seeking $900 million, was filed in March against former Washington Mutual Inc. Chairman Kerry Killinger and two other former executives at WaMu, the giant Seattle thrift that was a huge purveyor of high-risk mortgages.

Like Perry, the WaMu executives have denied wrongdoing.

Regulators have also targeted Countrywide Financial Corp. of Calabasas, perhaps the most notorious of the aggressive home lenders. The troubled firm was taken over by Bank of America Corp. in 2008, eventually causing tens of billions of dollars in losses to Bank of America.

The FDIC was spared losses on that deal. But the SEC contended investors suffered plenty, and sued former Countrywide CEO Angelo Mozilo, who agreed last year to pay a $22.5-million fine to settle the SEC suit. Mozilo also was required to return $45 million in "ill-gotten gains" — a repayment covered by Bank of America.

The FDIC said this week that it has authorized lawsuits against 248 directors and officers of failed banks, totaling $6.8 billion in claims. So far, it has brought suits against former officials of just seven institutions including IndyMac and Washington Mutual.

The FDIC can seek to recover damages by filing negligence or fraud lawsuits against professionals who played a role in bank failures. That includes officers and directors of the institutions, as well as outside professionals such as lawyers, accountants, appraisers and brokers. Claims also can be filed against fidelity bond carriers and title insurance companies.

Defendants in California have included former executives from a diverse array of financial institutions, among them 1st Centennial Bank of Redlands, the appraisal arm of CoreLogic in Santa Ana and an IndyMac division that made loans to home builders.

The case against Perry, brought on the FDIC's behalf by L.A. law firm Nossaman, focuses on the period from April to November 2007, when the mortgage meltdown was well underway.

It says Perry "negligently" allowed IndyMac to pile up $10 billion in dicey mortgages on its books during that period that it was trying to resell to investors. Selling plain-vanilla loans to be packaged in government-backed securities is common among mortgage lenders. Before the financial crisis, Wall Street was eager to buy up even the riskiest loans to create "private label" mortgage securities.

At the time in question, though, Perry had acknowledged that private buyers were becoming skittish "due to increasing concerns about the credit quality of loans (including IndyMac loans)," the FDIC suit said.

Perry, it said, "chose to roll the dice in an aggressive gamble to increase market share" and wound up stuck with unsalable loans, the suit said. When IndyMac reclassified them as "hold for investment" instead of "hold for sale," it projected that losses on the mortgages would exceed $600 million, the suit said.