The Federal Deposit Insurance Corporation (“FDIC”) filed a baseless civil lawsuit against me on July 6, 2011– nearly three years after they seized Indymac Bank– seeking $600 million in damages. The allegations in that lawsuit simply are not true. In fact, this lawsuit is an attempt to bury the truth, that I was a prudent and capable Bank CEO. The FDIC didn’t use its own lawyers to file this suit against me, they contracted it out to a private law firm in Los Angeles, and are acting like any other private plaintiff.
Here is an excerpt from the FDIC’s lawsuit:
“Perversely, 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.”
This defamatory statement was then widely published in the Los Angeles Times and other press accounts of the lawsuit. It’s not true, but it makes a great sound-bite at my expense.
From January 2007 onward, the facts clearly show that I was taking many actions to keep Indymac Bank safe and sound. Among other things, I was leading efforts that resulted in the tightening of lending guidelines, the elimination of loan products and the closing of lending divisions, and the significant reduction in lending volumes and market share. Indymac roughly halved its lending during the year and the risk profile of the remaining production was significantly reduced: total loans funded shrunk from $25.9 billion (Q107) to $23.0 billion (Q207) to $17.1 billion (Q307) to $12.3 billion (Q407). Unfortunately, in reducing this loan volume, we had to lay off more than 1,000 good and loyal employees. Because eliminating production also meant eliminating jobs and profits (which was also necessary to keep Indymac Bank safe and sound), it was not such an easy and simple a decision as the plaintiffs’ lawyers portray in their lawsuit. It is also the kind of big-picture strategic decision-making that involves the entire Board of Directors, not just one individual.
No major home lender cut more than or as fast as, Indymac, and we cut even more and faster on higher-risk products. For example, Indymac made $876 million in second liens (including HELOCs) in Q207, a 53% decline year over year from Q206. During that same Q207, #1 Bank of America produced a whopping $22.6 billion in 2nds, an 8% increase over Q206, and #2 JPMorgan Chase produced $14.6 billion in 2nds, a 4% increase over Q206. In fact, not one of the top ten second lien lenders cut lending in Q207 more than Indymac did. In addition, we also reduced our Option Arm loans 42% in Q207, from Q206. Also, in Q207, we sold 90% of our loan production into the secondary market; higher than the 88% we sold in 2006, the 86% we sold in 2005, the 82% we sold in 2004, and 79% we sold in 2003. Those are the lending and secondary market facts and they alone refute this particular FDIC allegation and much of the entire lawsuit.
Why would a well-respected CEO, who had been leading Indymac for more than 15 years, suddenly decide to risk his entire career and reputation and “roll the dice” — let alone to do so in a time of heightened risk? That doesn’t make any sense. And how can the FDIC make this allegation, when it directly contradicts the allegations they made in their meritless lawsuit against Indymac’s construction lending managers. In their other lawsuit, the FDIC says I was a prudent leader who had warned my managers to be careful and not chase loan volume. Which is it? Prudent CEO or not?
Moreover, to the extent the FDIC has suffered losses, it should look at its own conduct before blaming others with 20-20 hindsight. As has been widely reported, the FDIC got taken to the cleaners in the deal it struck with OneWest. Thanks to the FDIC pursuing a fire sale of Indymac and then entering into a generous loss share agreement with the purchasers, the owners of OneWest are now making billions off of former Indymac assets while the FDIC has lost billions.
While it has been likely that the FDIC was going to sue me, no matter the facts, ever since Indymac Bank was seized back on July 11, 2008, it was frankly a surprise to me that it occurred after nearly three years. For many reasons (including those explained above), the FDIC lawsuit has absolutely no merit. I did nothing wrong. As the case proceeds, I may supplement this page with additional information regarding the FDIC’s baseless lawsuit.
September 15, 2011 – M. Perry Files Motion to Dismiss FDIC Complaint (Motion to Dismiss)
July 10, 2011 – FDIC’s Bair Says “Treatment of Little Banks Unfair vs. Big Banks” (NYT Article)
July 7, 2011 – M. Perry’s Attorneys’ Press Statement Re: FDIC Complaint (Attachment)
July 6, 2011 – FDIC Files Complaint Against M. Perry (Attachment)
June 20, 2011 – OneWest Executive “Admits Profits Came From Deal” Where Experts Say FDIC Got Taken (LABJ Article)
April 5, 2011 – FED rejects AIG bid, “Will Only Sell If Best Bid Represents Good Value For The Taxpayers/Public, Reserve Levels Set” (WSJ Article)
March 19, 2010 – Greenspan says, “Central Banks Deliberately Established Undercapitalized Private Financial System, and Sovereigns Must Temporarily Come to Rescue, as a Result” (The Crisis)
February 20, 2010 – FDIC Expert Ely, “Wonders whether FDIC loss due to sweet acquirer deal?” (LA Times Article)
November 17, 2009 – Bernanke testifies, “Crisis Caused by Macroeconomic Events I Did Not Foresee” (FCIC Testimony)
January 19, 2009 – FDIC’s Bair Says, “We don’t have rational pricing for assets right now” (NY Times Column)
January 2, 2009 – FDIC’s Bovenzi announces Sale of Indymac to Highest Auction Bidder (Attachment)
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