On the Securities and Exchange Commission’s Web page trumpeting enforcement actions related to the financial crisis, its fraud case against former IndyMac Bancorp CEO Michael Perry appears about halfway down the list. Pretty soon the case may be off the list entirely, given how successfully Perry’s lawyers at Covington & Burling have been able to whittle down the agency’s claims.
Ruling from the bench at a summary judgment hearing on Monday, U.S. District Judge Manuel Real in Los Angeles dismissed two claims from the SEC’s civil case, which alleges that Perry concealed IndyMac’s true financial condition before the bank’s 2008 collapse. Real tossed the SEC’s fraud and negligence claims that Perry omitted key information from two May 2008 regulatory filings about the “risk weighting” IndyMac used to calculate its capital ratios. All that remains in the once hefty case against Perry is the agency’s claim that he should have disclosed additional details about an $18 million capital contribution IndyMac Bank made to itself.
The Federal Deposit Insurance Corp. seized Pasadena, Calif.,-based IndyMac in July 2008, after a run by depositors led to one of the biggest bank failures in U.S. history. In February 2011, the SEC brought civil fraud charges against Perry and two IndyMac CFOs, S. Blair Abernathy and former CFO A. Scott Keys. The complaint alleged that the trio made false and misleading statements in seven regulatory filings issued in the months before IndyMac failed.
Abernathy immediately settled without admitting wrongdoing and paid a $125,000 penalty. Perry, for his part, went online to proclaim his innocence, launching a personal Web site called www.nottoobigtofail.com. “In hindsight, any mistakes we made were minor compared to the systemic and macroeconomic events that unfolded in this crisis,” Perry wrote in a personal statement that also discusses his humble middle class origins and battles with illness. “[The] SEC, FDIC, and others are now seeking to blame me and other honest and capable individuals.”
It’s tough to say whether Perry is winning in the court of public opinion, or whether anyone outside of the securities bar is paying much attention at this point. But in the courtroom, Perry and his lawyers at Covington are a hot streak. Judge Real gutted the case in May, ruling on summary judgment that five of the seven filings at issue weren’t false or misleading. The decision effectively wiped out the SEC’s case against Keys, who’s represented by Willkie Farr & Gallagher, though Willkie’s Gregory Bruch told us Keys has not been formally dismissed.
As for Perry, the May ruling left intact only claims that the former CEO fraudulently omitted details from two May 12, 2008 filings concerning IndyMac’s risk weighting and the bank’s $18 million capital contribution. The SEC also alleged, in the alternative, that Perry made those misstatements negligently.
Real tossed each of the agency’s claims related to IndyMac’s risk weighting on Monday, concluding that the bank disclosed accurate information about its capital ratios and that it did not have a duty to disclose a separate supplemental ratio it reported to the Office of Thrift Supervision. Real also tossed the SEC’s related claim that Perry acted with negligence.
“From the start, this has clearly been a case of the SEC overreaching,” said Perry’s lead lawyer, Covington partner D. Jean Veta. “IndyMac made clear its tenuous capital position, and the market understood that. Indeed, IndyMac disclosed other scenarios where its capital ratios would have been far worse.”
“Mr. Perry looks forward to disposing of this last remaining issue at trial,” Veta added.
