FDIC sues former IndyMac CEO in $600 million negligence case
The Federal Deposit Insurance Corp. filed a negligence lawsuit against former IndyMac CEO Michael Perry last week, accusing the executive of producing risky home mortgages that eventually soured, causing more than $600 million in losses.
Perry's attorney Jean Veta responded to the complaint Monday saying, "The lawsuit filed by the FDIC against Michael Perry is baseless. Mr. Perry led IndyMac with integrity and intelligence. The FDIC’s belated claim that Mr. Perry was somehow 'negligent' is dead wrong."
In the complaint, the federal regulator, which took over IndyMac after the bank's failure in 2008, accuses Perry of putting the bank at risk by failing to end the "production of a pool of more than $10 billion in risky, residential loans intended for sale into a secondary market." The FDIC claims Perry knew production of the loans was occurring at a time when the secondary market was becoming unstable and illiquid due to ongoing concerns over credit quality.
"Instead of enforcing credit standards, Perry chose to roll the dice in an aggressive gamble to increase market share while sacrificing credit standards, even though a reasonable banker of a depository institution would have suspended, limited, or stopped the production of these risky loans during this time of known, unprecedented, and escalating risks," according to the FDIC.
The complaint also said Perry failed to gain traction with the loans and was later forced to transfer the loans to IndyMac's investment portfolio where they caused more than $600 million in losses.
The FDIC claims Perry knew his actions were risky, quoting him in the lawsuit saying, "Clearly, our risk offices are not to blame for the situation INIB finds itself in. This time the losses are 1000/0 operating management's fault (from me on down), there is no substitute for experience, good common sense and business judgment."
The suit cites another quote from Perry where he allegedly states, "Look, we've had lousy performance and the buck stops with the CEO … I'm a big believer in being held to account."
Attorneys for Perry object to the way he is being portrayed in the suit and claim the FDIC is wasting taxpayer dollars by attempting to deflect the blame from its own failures leading up to the crisis.
Benjamin Razi, one of Perry attorneys wrote in a statement, "the FDIC’s claim is that Mr. Perry should have foreseen the financial crisis — even though nobody else did. Not the FDIC. And not any of the other regulators responsible for supervising IndyMac. Of course, the complaint neglects to mention that the FDIC’s own Chairman, Sheila Bair, acknowledged that 'few saw all the risks' in the conditions leading up to the crisis."
In July 2010, the FDIC filed suit against other IndyMac executives for their roles leading up to the bank's substantial losses and government takeover. In February, the SEC filed a similar complaint against Perry and two other executives.
Write to Kerri Panchuk.
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