IndyMac Executives Settle SEC’s Charges of Securities Fraud

Jack Humphrey, Regulatory journalist
February 12, 2011 /

The Securities and Exchange Commission has filed charges against three former senior executives at IndyMac Bancorp for allegedly taking part in misleading investors through false disclosure about the financial position of the company and its subsidiary.

In a filing before the U.S. District Court for the Central District of California, the SEC claimed that Michael Perry, former CEO of IndyMac, and former CFOs A. Scott Keys and S. Blair Abernathy, abetted the company’s violations against its periodic reporting requirements even though they were informed about the ailing condition of IndyMac through internal reports.

In 2007 and 2008, IndyMac has suffered deteriorating capital and liquidity. The company projected that it would recover profits and pay preferred dividends in 2008 without raising new capital, the SEC said.

But late in February that year, IndyMac started raising new capital to save the company’s financial position, facts which the three former executives failed to disclose to investors in its 2007 financial statements, according to the SEC.

Furthermore, IndyMac failed to live up to its promise of paying the dividends and suspended the payments by no later than May 2008 due to rating downgrades in April 2008 on bonds held by IndyMac. However, this was not stipulated by Perry in the company’s stock offering, the SEC said.

The SEC implicated Abernathy, who replaced Keys in 2008, in the securities fraud charges for making false and misleading statements in the offering documents used in selling new IndyMac stock to investors.

In addition, Abernathy was also accused of misled investors about the quality of the loans in six IndyMac offerings of residential mortgage-backed securities (RMBS) totaling $2.5 billion despite receiving reports that 12 to 18 percent of IndyMac’s loans were falsely represented.

Similarly, the SEC has accused three investment companies under West End group and four managers in January 20 for intentionally hiding the fact that the companies had financial problems due to wrong investment strategies, making investors believe, that they make investments in steady companies.

To keep projections of the companies’ financial stability, bank loans from WestLB and DZ Bank AG, amounting $8.5 million were partially distributed to several clients, $1.5 million of which was allegedly misappropriated by investment adviser William Landberg for personal finances.

 

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