Private Litigation

I have decided, at this time, not to respond in detail to the allegations in the various private civil lawsuits against me and other Indymac managers and directors. They are numerous and most of those involved in these cases, on both sides, know they are frivolous and likely will never go to trial. These lawsuits are designed solely to extract financial settlements from directors and officers liability insurance policies.

With that said, let me just cite some facts regarding just two of these lawsuits to make my point:

1. Wayman Tripp and Sven Mossberg are the plaintiffs in the first securities class action lawsuit (“Tripp”) filed against me and others in the first half of 2007, when our stock price started to decline as a result of the U.S. housing and mortgage markets’ problems. The plaintiffs’ attorneys literally took another lawsuit filed against another mortgage firm and just changed the defendants’ names in the heading to Indymac, Perry, etc. and filed it. It still had the facts and names of another mortgage company and its officers in the body of the lawsuit. In other words, they had no real facts and no real plaintiff. They sued because the stock price had declined enough and they figured they could get a settlement. The judge dismissed this lawsuit five times over several years, but each time allowed the plaintiffs to modify their complaint. On the Plaintiff’s sixth try, roughly three years later in 2010, the judge did not grant our Motion to Dismiss. To put this in perspective, I am told that at the initial pleading stage, the law requires the judge to assume the allegations in the complaint are true for purposes of deciding a motion to dismiss. Thus, it doesn’t matter that the plaintiffs’ attorneys can and do intentionally distort the truth in their complaint or that nearly all of the witnesses referenced in their complaint were labeled “Anonymous” and that it is only much later in the litigation process that the plaintiffs actually have to prove that their distortions are true– a challenge they will be unable to meet.

Importantly, the SEC in its extensive investigation must have reviewed this lawsuit and its allegations, yet its own suit did not confirm even one of Tripp’s primarily lending/underwriting disclosure allegations. In fact, Tripp’s allegations and timeframe are completely “out-of-sync” with the SEC’s allegations and timeframe. For example, the Tripp suit’s class period is from March 1, 2006 through March 1, 2007, and yet the SEC suit’s class period is from February 12, 2008 until May 12, 2008. Also, the Tripp suit claims “The Truth” was partially revealed on January 16, 2007, and January 25, 2007, and “The Truth” was fully revealed on March 1, 2007 (in the securities law an alleged loss occurs as a result of “The Truth” being revealed). This is more than a year before the SEC says “The Truth” was partially revealed on May 12, 2008. It is ridiculous that, with respect to Indymac, there is the Tripp case AND another purported private securities fraud class action cases AND an SEC securities fraud case, all with different allegations and time periods. Think about it, if Tripp was true, and “The Truth” was fully revealed on March 1, 2007, what investor in their right mind would have bought Indymac stock after that date, given that the same management team, whose alleged fraud had been revealed, was still in place? And if it was true, how would the SEC have allowed this management team to allegedly commit securities fraud in the Tripp case and in a separate, later private securities class action case and still remain in place to commit the alleged fraud a third time in the SEC’s case?

Also, there is a Lead Plaintiff Provision in the 1995 Private Securities Litigation Reform Act that mandates that one of Indymac’s largest shareholders be allowed (if they wish) to become the lead plaintiff, as they allegedly have the largest losses and therefore might be the most appropriate plaintiff to represent the entire class of plaintiffs. Indymac was primarily owned by major institutional investors, and yet you will notice that the plaintiffs’ names in both of the private securities litigation cases are not institutional investors at all, but individuals (likely “professional” plaintiffs). Why is that the case? It’s simple. Because these are only parties the plaintiffs’ lawyers could find who were willing to have their names associated with these ridiculous allegations.

Update: The FDIC in its July, 2011, complaint, after a nearly three year investigation of Indymac Bank, did not include a single underwriting or appraisal allegation against me and therefore refutes (just like the SEC did) Tripp’s primarily lending/underwriting disclosure allegations.

2. Certain plaintiffs’ lawyers realized that there was a separate $10 million ERISA insurance policy and sued me and others alleging we breached our fiduciary duties in administering Indymac’s employee benefits plans. Let me briefly review the facts. Indymac had phased out its defined-benefit pension plan in favor of increasing contributions to its defined-contribution, 401K plan and the pension plan was administered by an independent firm. There was no direct investment in Indymac stock in the plan, so the pension was not an issue. The 401K was the issue. In the early years of Indymac’s 401K plan, the company matched a percentage of employee contributions with Indymac stock. As a result of some well-publicized corporate failures (and their employees suffering significant losses), I had personally directed, with the board’s support and approval, a change in the plan (several years before Indymac’s problems); eliminating the Indymac stock match in favor of a full cash match. As a result of this change, the dollar-value percentage of Indymac stock held by employees in Indymac’s 401K plan had declined significantly, from over 1/3rd of all invested funds to 11.8%, pre-crisis at December 31, 2006 ($16.7 million out of a total of $141.4 million in plan assets). In addition, we annually advised employees in writing to maintain a well -diversified 401K plan and regularly conducted voluntary employee seminars on prudent and proper 401K investing. At some point in 2007/2008, I became aware that a few employees were investing an inordinate amount of their 401K in Indymac stock, because they believed it to be a good long-term investment, as did I. Upon becoming aware of this, I instructed human resources to contact each one personally and advise them in writing that this was a risk that we recommend they not take in their 401K plan. The only thing more we could have done was “ban” investing in Indymac stock in our 401k plan. But I didn’t think that would be fair to employees’ free choice. What if we had survived and the stock had doubled or tripled or more? That actually had happened before, when we survived the 1998 Global Liquidity Crisis. The bottom line, is I and the others involved in these plans were not only responsible, but in fact outstanding fiduciaries of these employee benefit plans: The 401K plan had $150.7 million in assets (and just $3.8 million in Indymac stock or 2.5% of fund assets) at December 31, 2007; more in total assets than the prior year-end, in spite of the financial crisis and Indymac’s dramatic stock decline, because of the prudent actions I and the other managers had taken to ensure that employees diversified their 401K investments. And yet we were sued and advised to settle this matter, because to defend against this suit would have cost roughly the entire insurance policy. Wasn’t it better to settle and have this money (after plaintiff’s attorneys fees) go back to Indymac employees? Yes, but was it right? With our $7 million settlement, millions were paid to the plaintiffs and their attorneys when there was absolutely no merit to their case. I don’t think it was right, but it is the system that we live with today, because our government and legal system allow these types of frivolous lawsuits to occur.

In conclusion, if I have to, I will lay out every single one of these cases and show their lack of merit. These cases are not driven by truly wronged plaintiffs, but by plaintiffs’ attorneys who desire to earn legal fees and settlements for themselves and their clients and in a minority of cases by plaintiffs who want others to be responsible for the contractual losses they suffered in this financial crisis, as result of their own or their firm’s decisions to invest in financial services firms, mortgage loans or mortgage backed securities or insure mortgage loans or securities.