Monthly Archives: August 2012
I think the SEC is engaging in denialism in their statements to the Court
I have been disturbed by the SEC continuing to dispute, in their legal filings to the Court, what I strongly believe are uncontroverted facts in the case. I had been at a loss to explain this properly until I recently came across the concept of denialism. The following was taken from denialism expert Mark Hoffnagle’s website http://www.denialism.com or from other sources:
“Denialism is the employment of rhetorical tactics to give the appearance of argument or legitimate debate, when in actuality there is none.”
“If one party to a debate accuses the other of denialism they are framing the debate, because denialism is prescriptive: it carries implications that there is a truth that the other side denies, and polemic because the accuser usually goes on to explain how the other party is denying the asserted truth and as such the other party is in the wrong, which leads to an implied accusation that if the accused party persist with the denial despite the evidence their motives must be base.”
I think the SEC has engaged in systematic denialism in my securities case and I believe their motive is to mislead the Court. Here is one important example:
Excerpt from Page 16, lines 10-25 of Plaintiff Securities and Exchange Commission’s Supplemental Memorandum in Opposition to Michael W. Perry’s Motion for Partial Summary Judgment Concerning Plaintiff’s Risk-Weighting Claim, August 22, 2012:
“In his reply, Perry claims the OTS’s June 2000 Order does not create a genuine factual dispute on the risk-weighting claim, because that order’s “preamble” allowed the OTS’s West Regional Director to waive any and all requirements in the order. Def. Mot. (Dkt. No. 117) at 5:10-15. In fact, the preamble says no such thing. Rather, it simply provides that:
OTS has determined that the holding company application and the rebuttal of control submission satisfy all applicable statutory and regulatory criteria, provided that the conditions set forth below are satisfied in a manner satisfactory to the West Regional Director or his designee (Regional Director). Chung Decl. (Dkt. No. 115) Ex. 21 (June 2000 Order) at 304.
Therefore, contrary to Perry’s argument, the preamble to the June 2000 Order did not grant the West Regional Director authority to waive any provision in the Order, but only certain “conditions” specified in the Order. Otherwise, the language in paragraphs 8 and 9 of the June 2000 Order, which required the Bank to perform certain measures “until such time as the Regional Director deems it no longer necessary,” would be rendered superfluous. Id. at 305-306.”
I don’t get it???? The OTS’ June 20, 2000 Order and the section of that Order that they highlight above clearly states that the OTS West Regional Director HAS the authority: “provided that the conditions set forth below (one of which is the subprime risk-weighting requirement) are satisfied in a manner satisfactory to the West Regional Director or his designee”. The June 20, 2000 OTS Order is attached below. Read it and determine for yourself.
Furthermore, the SEC knows that the subprime risk-weighting requirement was changed twice by the Western Regional Director in prior years (the SEC mentions it in court filings and it is discussed in sworn testimony by me and others); so not only does the June 20, 2000 OTS Order clearly state that the Western Regional Director has the authority, but he had exercised that authority on this very issue in the past.
At the June 18, 2012 hearing on the Motions in Limine, Judge Real said the following as support for his decision to deny the SEC’s motion to exclude me from presenting evidence of Mr. Dochow, Western Regional Director of the OTS, granting the waiver: “In this case, the statements of Dochow are non-hearsay to the extent that they establish that the statements were in fact made and that IndyMac acted in the way it did because of those statements. The relevant inquiry is whether a government regulator told Perry that certain conduct was permissible, not if such statements were in fact, quote, true.” (page 8, lines 3-9.)
Mr. Dochow signed a declaration (under penalty of perjury) dated June 7, 2012 which is attached below. In this June 7 declaration, which has been provided to the Court, Mr. Dochow clearly admits that he approved the subprime waiver and yet the SEC once again tries to engage in denialism.
Unbelievably, the SEC says that the literal reading of Mr. Dochow’s June 7 declaration does not grant IndyMac the subprime waiver. Read it for yourself. Also, I have included below excerpts from Indymac CFO’s sworn testimony to the SEC that unambiguously confirms Mr. Dochow’s June 7 declaration.
The SEC also says, “well if he did approve it, Mr. Dochow really didn’t have the authority under the June 20, 2000 OTS Order to do so”. After Mr. Dochow’s signed his June 7 declaration, the SEC traveled to the State of Washington to interview him. After this interview, Mr. Dochow sent my lawyers an email (which is not signed under penalty of perjury) that is also attached below. His email essentially says: “I had forgotten about the June 20, 2000 OTS Order and now that I have reviewed it and heard the SEC’s views, I am not sure whether or not I had the authority to grant the subprime waiver.”
In my view, the SEC has inappropriately worked to foster the impression of a controversy about Mr. Dochow’s approval of the subprime waiver and his authority to do so, as part of their denialist legal tactics.
Mr. Dochow admitted in his June 7 declaration that he approved the waiver and his subsequent email, expressing concerns about his authority, does not retract that admission. The June 20, 2000 OTS Order granted Mr. Dochow, the Western Regional Director, the authority to waive the subprime risk-weighting and he had exercised that authority on this specific issue in the past (also, see IndyMac CFO’s testimony below regarding his views, under oath, about Mr. Dochow’s authority under the Order). And Judge Real has ruled on this matter. In essence, Judge Real has said that “it is not relevant whether or not Mr. Dochow had the authority to grant the waiver; it is only relevant as to whether or not he granted the waiver. If he did grant the waiver, IndyMac had a right to rely on Mr. Dochow’s actions”.
Judge Real’s ruling is pure common sense. Even if the June 20, 2000 OTS Order did not grant Mr. Dochow the authority (and it clearly did), Indymac was entitled to rely on Mr. Dochow and his “representation” (via his approval of the waiver) that he did have the authority because of his senior role at the OTS. Was I supposed to ask the Western Regional Director, do you have the authority to do this? That only makes sense to the SEC. Alternatively, the SEC unreasonably expected me to remember and consult this June 20, 2000 OTS Order, nearly eight years later, at the time of Mr. Dochow’s waiver on February 26, 2008. My sworn testimony shows I did not remember this 2000 document by 2008. It is clear from Mr. Dochow’s statements that he didn’t recall this OTS Order either. And this is all beside the point, the June 20, 2000 OTS Order “is clear on its face”, read it for yourself: Mr. Dochow did have the appropriate authority to grant the subprime waiver.
The above facts are overwhelming and show clearly that the SEC is engaging in denialism as an inappropriate legal tactic in an attempt to mislead the Court.
Let me leave you with one final thought:
Excerpt from Page 14, line 10-12 of Plaintiff Securities and Exchange Commission’s Supplemental Memorandum in Opposition to Michael W. Perry’s Motion for Partial Summary Judgment Concerning Plaintiff’s Risk-Weighting Claim, August 22, 2012:
“But whether that purported waiver is actually granted by the OTS is irrelevant in assessing the validity of the Commission’s subprime double-risk weighting claim.”
I think that says it all. Let’s summarize what the SEC alleges in its filings to the Court: Mr. Dochow, the Western Regional Director of the OTS, didn’t approve the subprime double-risk weighting waiver. But if he did, he didn’t have the authority to do so under the June 20, 2000 OTS Order. But if he did and he had the authority to do so, it doesn’t really matter….because it “is irrelevant in assessing the validity” of our claim.
If that isn’t denialism, I don’t know what is.
The SEC wants to create the false impression that there is a controversy (beyond the disclosure omission allegation) when there is not one, in the hopes that it will sway the Court away from the facts, the truth and the law.
Excerpts from IndyMac CFO’s April 5, 2012 Sworn SEC Testimony that supports my statements above:
SEC’s Chung: “Well, do you recall being on a telephone call with Mr. Perry and Darrel Dochow to discuss obtaining relief from the subprime double-risk weighting requirement?”
IndyMac CFO: “I remember being on a call in late February where Mr. Dochow indicated that they were giving us relief.”
SEC’s Chung: “Okay. Well, tell me everything you remember about that phone call.”
IndyMac CFO: “I remember it occurred in Mike’s office. I don’t recall who else was there other than myself and Mike. I remember discussing the purpose of the call…some of this is based on my recollections of documents that I’ve seen in testimony. We were talking about a number of different points. I don’t remember the specifics of the conversation. I do remember…them saying they would be able to do the double-risk weighting of subprime. Obviously that was good news.”
SEC’s Chung: “Well, was there a discussion as to what would trigger prompt corrective action after obtaining this relief from the OTS?”
IndyMac CFO: “My understanding would have been based on the capital calculation that we were following after he gave us, to use your term, the waiver, would have just been the standard 10 percent test for total risk-based capital.”
SEC’s Chung: “Was that made explicit by Mr. Dochow during the phone call?”
IndyMac CFO: “When the west region director tells you that you are not going to be subject to the double-risk weighting requirement, I think it’s obvious that he’s referring to capital calculation, not being….not done on the subprime risk weighted method and that you would follow the other rules. So, if you were below 10 percent on a, I’ll call it a waiver basis, then that would be the way you would assess it. If you were below 10 percent, you would be adequately capitalized. I’m inferring that. I mean he was the west region director, if I remember correctly, and those conditions of approval, compliance with that condition of approval is vested in the west region director. He would be the person we would be looking to determine that we’re following the subprime guidelines correctly.”
Click here to access the OTS’ June 20, 2000 Order Approving Indymac’s Thrift Acquisition
Click here to access Mr. Dochow’s June 7, 2012 Declaration
The Truth is Emerging Despite the SEC’s Attempts to Conceal It
Below are excerpts from IndyMac former Chief Accounting Officer’s Sworn SEC Testimony, February 21, 2012:
SEC’s Searles: “And what where the dates of your employment with IndyMac?”
IndyMac CAO: “Approximately January 1, 2006, through approximately May 19, 2009, which would include IndyMac Federal Bank.”
SEC’s Searles: “And how would you in just a few sentences describe your duties at IndyMac?”
IndyMac CAO: “I was responsible for all SEC regulatory reporting, accounting policy, and substantially all general accounting for the organization.”
SEC’s Searles: “What was your personal involvement in the preparation or review of the 10-K’s and 10-Q’s of IndyMac?”
IndyMac CAO: “My involvement was to review the draft document when it was prepared. I reviewed it for disclosure content based on things that I was aware of. I reviewed it to ensure that items that were raised as part of the Disclosure Committee process were appropriately addressed within….either addressed within the….within the documents, provided feedback to my team on disclosures and how those disclosures would be worded, presented, and I would say those were my general responsibilities.”
SEC’s Searles: “And regulatory reporting, this other function you described, what are you referring to there?”
IndyMac CAO: “Primarily the preparation of the TFR. It’s a quarterly report that’s filed with the OTS.”
SEC’s Searles: “And what prior experience prior to IndyMac are you drawing on?”
IndyMac CAO: “I spent seven years with ABN AMRO, three and a half particularly responsible for accounting policy and reporting which included regulatory reporting to the OCC and the Fed, and then my three….give or take three years with Bank One where I was responsible for SEC reporting and Thrift…not Thrift, bank financial reporting with Bank One.”
Perry Attorney Razi: “And what was your role with respect to this CEO and CFO checklist for disclosure controls….?”
IndyMac CAO: “As indicated before, between myself and the (Chief Audit Executive), we would work to insure that Mike Perry and Scott Keys and subsequently Blair Abernathy would be able to sign these….each of the respective items that are listed hereby ensuring that we had either provided them with appropriate documentation, support, information, et cetera to be able to evidence their….their review.”
Perry Attorney Razi: “At the top of the first page (of IndyMac’s disclosure controls checklist) right under the heading IndyMac Bancorp the company supports the notion of full and transparent disclosures. Do you see that? Was that a true statement?
IndyMac CAO: “Absolutely.”
Perry Attorney Razi: “Did Mr. Perry ever do anything during your tenure at IndyMac that suggested to you that he did not support the notion of full and transparent disclosures?”
IndyMac CAO: “No, he did not.”
Perry Attorney Razi: “Did Mr. Perry ever make any disclosures to shareholders that you considered to be false and misleading?”
IndyMac CAO: “None that I’m aware of.”
Perry Attorney Razi: “Did he ever ask you to make a disclosure that you believe was false and/or misleading?”
IndyMac CAO: “No, he did not.”
Perry Attorney Razi: “Did he ever ask you to omit information from IndyMac Bank’s disclosures that you believe would have been material to investors?”
IndyMac CAO: “No, he did not.”
Perry Attorney Razi: “That’s all the questions I have for you at this time.”
Keys Attorney Bruch: “….you’ve been a CPA for most of your adult professional life; is that right?”
IndyMac CAO: “That’s a true statement.”
Keys Attorney Bruch: “And when you were at IndyMac you worked with CPAs who reported to you?”
IndyMac CAO: “Yes.”
Keys Attorney Bruch: “I believe Mike Perry was also a CPA. Whether he was active or not I don’t know?”
IndyMac CAO: “That….I say I know he worked for one of what is now the Big 4 firms. I don’t remember whether he was a CPA or not.”
Keys Attorney Bruch: “Okay. Are you factual….generally familiar with the professional standards of the accounting profession on subordination of judgment?”
IndyMac CAO: “Yes.”
Keys Attorney Bruch: “Was there ever a time during your employment at IndyMac where you felt like you were in a position where you were asked to subordinate your best professional judgment?”
IndyMac CAO: “No”.
Keys Attorney Bruch: “Was there ever a time at IndyMac when anyone who worked for you who was a licensed accounting professional told you that they felt like they were asked to subordinate their best professional judgment?”
IndyMac CAO: “The answer to that is no and I would extend that to say that there was no one whether they were a CPA or not that…expressed that…..expressed those comments to me.”
Keys Attorney Bruch: “Okay. And in your dealings at IndyMac you had a significant role in dealing directly with the audit team at Ernst & Young; is that right?”
IndyMac CAO: “That’s correct.”
Keys Attorney Bruch: Was there ever a time where any member of the audit team at Ernst & Young questioned the ability to rely on the representations of Mr. Keys?”
IndyMac CAO: “None that I’m aware of.”
Keys Attorney Bruch: “And the same question. Was there ever a time where the audit team questioned the ability to rely on management representations of Mr. Perry?”
IndyMac CAO: “None that I am aware of.”
Keys Attorney Bruch: “Was there ever a time that they questioned the integrity of Mr. Perry?”
IndyMac CAO: “None that I am aware of.”
Keys Attorney Bruch: “I have no further questions. Thank you…”
How about this recent SEC Statement to the Court; is it misleading? I think so.
Excerpt from Page 4, line 3-7, “Plaintiff Securities and Exchange Commission’s Supplemental Memorandum in Opposition to Michael W. Perry’s Motion For Partial Summary Judgment Concerning Plaintiff’s Risk-Weighting Claim”, August, 22, 2012:
“Moreover, every time IndyMac changed how it calculated this ratio, it also disclosed these changes…..even minor ones….to its investors in its SEC filings. For example, IndyMac’s third quarter 2002 Form 10-Q, 2003 Form 10-K, and first quarter 2005 Form 10-Q each reported minor modifications to the Bank’s calculation of its double risk-weighted capital ratio.”
Indymac’s First Quarter 2005 10-Q, filed April 27, 2005
Regulatory Capital Requirement Excerpt from Page 53
“During 2001, the OTS issued guidance for subprime lending programs which requires a lender to quantify the additional risks in its subprime lending activities and determine the appropriate amounts of allowances for loan losses and capital it needs to offset those risks. The Company generally classifies all non-GSE loans in a first lien position with a FICO score less than 620 and all non-GSE loans in a second lien position with a FICO score less than 660 as subprime. We report our subprime loan calculation in an addendum to the Thrift Financial Report that we file with the OTS. Subprime loans held for investment and subprime loans held for sale which are either delinquent or more than 90 days old since origination are supported by capital two times that of similar prime loans. These subprime loans totaled $290.8 million at March 31, 2005.”
Indymac’s Fourth Quarter 2004 8-K, filed on January 27, 2005
Regulatory Capital Requirement Excerpt from Pages 64-65
“During 2001, the OTS issued guidance for subprime lending programs, which requires a lender to quantify the additional risks in its subprime lending activities and determine the appropriate amounts of allowances for loan losses and capital it needs to offset those risks. The Company generally classifies all loans in a first lien position with a FICO score less than 620 and all loans in a second lien position with a FICO score less than 660 as subprime. Loans meeting this definition are supported by capital two times that of similar prime loans. We report our subprime loan calculation in an addendum to the Thrift Financial Report that we file with the OTS. As of December 31, 2004, subprime loans totaled $695.8 million as calculated for regulatory reporting purposes, of which $612.5 million were loans held for sale.”
Excerpt from Page 366 of Michael W. Perry’s April 18, 2012 Sworn SEC Testimony:
Perry: “It looks like it’s the 10-Q for the period ended March 31, 2005.”
SEC’s Searles: “I’d like to direct your attention to page 53 using the page numbers at the bottom of the document. Under “Regulatory Capital Requirement” section on that page, does this…is this the second change that you were testifying to earlier?”
Perry: “Where does it refer to a change?”
SEC’s Searles: “Well, it doesn’t refer to a change, but it talks about the calculation. Subprime loans held for sale which are either delinquent or more than 90 days old.”
Perry: “Well, that’s the definition of how we calculated the subprime double-risk weighting at this time. As you said, it is not a change here.”
Excerpts from Pages 408 and 412 of IndyMac CFO’s April 5, 2012 Sworn SEC Testimony:
SEC’s Chung: “Again, do you recall that change in the methodology being disclosed in a SEC periodic filing?”
IndyMac CFO: “I believe we articulated the new method. I don’t know if we indicated that it was a change…..”
SEC’s Chung: “Well, was there any consideration given to not disclosing the changes in the method of calculating the subprime adjusted total risk-based capital ratio?”
IndyMac CFO: “It’s showing on 53, I don’t think this actually discloses that a change was made…..”
Why is this important? Because the SEC is trying to say that historically when Indymac’s subprime risk-weighting methodology was changed by the OTS, IndyMac disclosed the change in its periodic filings. Therefore (I guess without regard to materiality?) it created an obligation to disclose the subprime risk-weighting change that occurred on February 26, 2008. The above shows that what IndyMac did in 2005 was no different from what it did in 2008: we disclosed the operative capital ratio, not the details of how that ratio was calculated as compared to what we did in the past. As a result of the OTS granting its waiver of any double risk-weighting requirement on February 26, 2008; the “new method” was in fact “no method” because the OTS had waived any double risk-weighting requirement. And while I was not involved in (or aware of) any discussions by IndyMac’s disclosure committee surrounding the decision to omit the subprime risk-weighting disclosure (and not discuss the OTS waiver) in the February 29, 2008, 2007 10-K, in hindsight, I support and understand their decision because IndyMac had no obligation to double risk-weight subprime loans at that time.
Status update on SEC vs. Michael W. Perry
On May 31, 2012, U.S. Judge Manuel L. Real issued an order granting my (and Indymac’s former Chief Financial Officer) partial summary judgment on five of the seven of the SEC’s key disclosure allegations; granting our entire motion as matter of law, applied to undisputed facts (if the judge rules that facts are in dispute, then they must be resolved at a trial not summary judgment).
The two remaining SEC disclosure allegations are both “omissions” (that I failed to disclose something, as opposed to disclosing something in a misleading manner) allegations related to Indymac’s 10-Q and 8-K filings on May 12, 2008.
Think about the big picture of the SEC’s remaining allegations against me. On May 12, 2008 ONLY, after roughly 16 months of very bad, publicly-disclosed news about Indymac (and the industry), they allege that I alone, even though I was not a member of Indymac’s disclosure committee and not involved in the decisions on how these matters should be disclosed, BEGAN to commit securities fraud by negligently or intentionally (the SEC still can’t decide which it was….negligent or intentional?) omitting two facts related to Indymac Bank’s regulatory capital.
That is utterly ridiculous on its face. What motive would I have had to BEGIN committing securities fraud on May 12, 2008? And how would I have done this by myself? I wasn’t on Indymac’s disclosure committee; as a result I wasn’t involved in the disclosure decisions regarding these two matters. I didn’t instruct anyone to omit these items. And no one told me they thought they should be disclosed. Finally, even with the benefit of hindsight, I don’t think these relatively technical disclosures really mattered by May 12, 2008. We had been publicly disclosing mountains of bad news about Indymac throughout 2007 and 2008, including on May 12, 2008. Many people questioned our ability to survive by then and our stock price on May 12, 2008; around $2 a share, reflected this fact.
As I have said before, I tried to settle this matter in early 2011 (before they sued me) and more recently, yet the SEC continues to pursue this case without regard to the truth. The truth is that neither I nor anyone else at Indymac committed securities fraud.
On June 13, 2012, we filed a partial summary judgment motion to dismiss one of the remaining two SEC disclosure allegations (the risk-weighting issue) and the 17(a)(2), negligence charges, in an effort to narrow the case for trial. Judge Real granted our motion, in full, on July 16, 2012, and set a trial date of September 4, 2008 for the SEC’s one remaining disclosure allegation.
At a pre-trial conference on August 6, 2012 the Court vacated its July 16, 2012 Order granting my motion for partial summary judgment of the risk-weighting issue and the 17(a)(2) claims, cancelled the trial date for September 4, 2012, set a date of September 10th for the rehearing of my partial summary judgment motion, and allowed the parties to submit further filings by August 22nd (which we did and I have already disclosed on the blog in Statement 21).
There is more behind the Judge’s decision at the August 6th pre-trial conference, but it’s not relevant to this brief update. The bottom line is the SEC thinks this decision is favorable (temporarily) to them. I am not sure; frankly neither side knows how the Judge will rule.
Whether or not the Judge grants my motion to dismiss the risk-weighting issue on September 10, 2012, I will still be going to trial where I am confident and in fact anxious for the truth (that I did not commit securities fraud) to emerge.
Are these recent SEC Statements to the Court inaccurate or misleading? I think so.
Excerpts from “Plaintiff Securities and Exchange Commission’s Supplemental Memorandum in Opposition to Michael W. Perry’s Motion For Partial Summary Judgment Concerning Plaintiff’s Risk-Weighting Claim”, August 22, 2012:
Page 4, lines 25-28:
“Instead, IndyMac simply erased from its first quarter 2008 Form 10-Q and related Form 8-K the description of the Bank’s regulatory requirement to double risk-weight subprime loans that had been routinely included in IndyMac’s quarterly and annual SEC filings since 2000.”
Page 5, Footnote 3:
“….In previous quarterly and annual SEC filings, IndyMac disclosed the Bank’s double-risk-weighted capital ratio in this table, including a footnote that stated that this ratio double risk-weighted the Bank’s subprime loans. However, that disclosure was not repeated in the first quarter 2008 Form 10-Q.”
February 12, 2008: Indymac’s 2007 Fourth Quarter 8-K was filed with the following Regulatory Capital Requirement Disclosure:
Excerpt from Page 33
The following presents the Bank’s actual and required capital ratios and the minimum required capital ratios to be categorized as “well-capitalized” as of the period indicated (dollars in thousands):
The OTS guidance for subprime lending programs requires a lender to quantify the additional risks in its subprime lending activities and determine the appropriate amounts of allowances for loan losses and capital it needs to offset those risks. We generally classify all non-GSE loans in a first lien position with a FICO score less than 620 and all non-GSE loans in a second lien position with a FICO score less than 660 as subprime. We report our subprime loan calculation in an addendum to the Thrift Financial Report that we file quarterly with the OTS. All subprime loans HFI, and subprime loans HFS, which are either delinquent or more than 90 days old since origination, are supported by capital two times that of similar prime loans. These subprime loans totaled $794.7 million at December 31, 2007. The impact of the additional risk-weighting criteria related to subprime loans had the effect of reducing our total risk-based capital by 31 basis points from 10.81% to 10.50%.
February 26, 2008: The OTS Western Regional Director Waives the Requirement to Double Risk-Weight Subprime Loans.
February 29, 2008: IndyMac’s Annual 2007 10-K was filed with the following Regulatory Capital Requirement Disclosure: Excerpt from Page F-52
The following presents Indymac Bank’s actual and required capital ratios and the minimum required capital ratios to be categorized as “well-capitalized” as of the dates indicated (dollars in thousands):
Note: The above Regulatory Capital Requirement Disclosure section from the 2007 10-K filed on February 29, 2008, no longer disclosed the subprime risk-weighted ratios in the table and the paragraph describing the subprime risk-weighting methodology, that was disclosed in the fourth quarter 2007 8-K filed on February 12, 2008, was removed because they no longer applied.
This excerpt from my 2009 sworn SEC testimony shows that the SEC knew that these disclosure changes were made on February 29, 2008 in the 2007 10-K (“Annual SEC filing”) in response to the OTS’ subprime waiver:
SEC’s Chung: “Did you have an understanding generally that IndyMac’s SEC filings, particularly the form 10-K’s, prior to 2007 contained….prior to this January 2008 contained disclosure of this nature?”
Perry: “I don’t recall having that understanding, no.”
SEC’s Chung: “Well, do you recall there being any discussions about disclosing the waiver, OTS of the double-risk weighting of subprime loans in the 2007 form 10-K?”
Perry: “No, I don’t”
SEC’s Chung: “And so just to close out this issue as it relates to the 2007 form 10-K, do you recall any discussions about the disclosure of the double-risk weighting of subprime loans in that 10-K?”
Perry. “I do not.”
SEC’s Chung: “Do you recall any discussions about disclosing the subprime adjusted capital ratios in the 2007 10-K?”
Perry. “I don’t.”
This excerpt from Indymac CFO’s April 5, 2012 sworn SEC testimony also shows the SEC knew that these disclosure changes were made on February 29, 2008 in the 2007 10-K (“Annual SEC filing”) in response to the OTS’ subprime waiver:
SEC’s Chung: “Well, to your knowledge, did anyone at IndyMac, inform counsel that reviewed the draft 2007 10-K that the OTS had given IndyMac relief on the subprime double-risk weighting?”
IndyMac CFO: “I believe….I would have to look. I think there’s some board minutes. Maybe those minutes from the 26th. I believe (outside counsel) would have been on that call.”
SEC’s Chung: “And was the change in the disclosure, the removal of language describing the subprime double-risk weighting requirement in the 2007 Form 10-K, was that expressly communicated to outside counsel who reviewed the 10-K.”
IndyMac CFO: “My guess is based on the time….since that was late in the process that we probably before that had drafts of the document which had the old language in it and they would have seen marked copy marked for changes. As to whether they specifically…that was specifically pointed to them, I don’t recall doing that, but I think it would have been obvious to them that that would have been a change in the document.”
Why are the SEC’s inaccurate or misleading statements important? Because the SEC is trying to mislead the Court by essentially saying: “Mr. Perry negligently or intentionally omitted the subprime risk-weighting disclosure and failed to mention the OTS waiver on the May 12, 2008 SEC 10-Q and 8-K, because it was material; it made the difference between being Well Capitalized (above 10%) or Adequately Capitalized (9.96%) and he didn’t want investors to know this….”
The SEC has multiple problems with this “theory”: 1) The SEC has the wrong date when this disclosure was changed in our periodic filings and the above shows they know it. It occurred in the 2007 10-K on February 29, 2008. 2) The SEC knows that I
never received a copy of the TFR or CCR addendum to the TFR. So the SEC knows that I was not aware of the 9.96% hypothetical figure (without the subprime waiver) in the CCR addendum to the TFR submitted as supplemental information to the OTS on or about May 12, 2008, and 3) The SEC knows that I was not involved in the disclosure decisions regarding the subprime risk-weighting and its waiver in Indymac’s public filings and that I never instructed anyone to omit this or any other disclosure nor did anyone recommend the disclosures the SEC alleges, with the benefit of hindsight, should have been made. Future blog postings will expand on these points.
Excerpt from Michael W. Perry’s Sworn SEC Testimony
It is my intention, as I have stated on this blog previously, to provide a complete record of all of my testimony before The Securities and Exchange Commission. My SEC testimony, under oath, is 1,147 pages, not including appendices or exhibits and was provided voluntarily over five days; three in 2009 and two in 2012.
I answered every single question thoroughly and accurately, to the best of my recollection. I have nothing to hide. I did not commit securities fraud and any fair and thorough reading of my testimony (and our legal filings in this case) will show that I did not. That being said, there are currently three separate protective orders that restrict my ability to publicly release my full testimony and I don’t have the time right now to review each page and redact certain testimony to comply with these orders. As a result, my plan is to release on the blog, subject to complying with these orders, all of my testimony that relates to the remaining two SEC allegations.
As part of this plan attached below is an excerpt of my April 18, 2012, sworn testimony: pages 341 through 387. This relates directly to one of the two remaining SEC allegations against me: namely, “that I negligently or intentionally omitted disclosures on May 12, 2008, related to Indymac Bank receiving a waiver from the OTS that eliminated any requirement to double-risk weight subprime loans in determining risk-based assets and the total risk-based capital ratio”.
This allegation is not true and this testimony demonstrates that it is not true.
Click here to access Excerpt from Michael W. Perry’s Sworn SEC Testimony
Supplemental Brief in Support of M. Perry’s 2nd Motion for Partial Summary Judgment in SEC Matter
Excerpts from Supplemental Brief:
“The undisputed facts show that IndyMac Bank’s (the “Bank’s”) operative capital ratio on March 31, 2008 was the ratio calculated without double risk-weighting subprime assets. Indymac accurately disclosed that ratio in its May 12, 2008 SEC filings. IndyMac also thoroughly disclosed the tenuousness of the Bank’s well-capitalized status. Its disclosures were neither false nor misleading.”
“The SEC suggests that there is a dispute about the Bank’s operative capital ratio as of March 31, 2008, focusing on the June 2000 OTS authorization order. But subsequent OTS documents conclusively demonstrate that the Bank’s operative ratio as of March 31, 2008 (i.e., the ratio used by the OTS in determining whether the Bank was well capitalized) was indeed the ratio calculated without double risk-weighting subprime assets: 10.26 percent. There is no evidence that the OTS has ever disputed that number…..Instead, the OTS continued to consider the Bank well-capitalized and did not reclassify it to an adequately-capitalized institution until July 1, 2008…a few days after the public release of a letter from Senator Charles Schumer precipitated a run on the Bank.”
“IndyMac duly disclosed the Bank’s operative 10.26 percent capital ratio as of March 31, 2008 in its May 12, 2008 SEC filings. There was nothing false or misleading about the disclosure.”
“Nor did IndyMac have a duty to disclose that the OTS had, on February 26, 2008, waived any requirement that the Bank double risk-weight subprime assets for purposes of calculating its operative capital ratio in the TFR.”
“Whether a defendant owed a duty to disclose depends on whether the omission rendered his or her statement false or misleading, not whether the omitted information was material.”
“Because the SEC cannot meet its threshold burden of establishing that IndyMac made a false or misleading statement in its filings here, it is irrelevant whether or not the allegedly omitted information about the OTS waiver was material.”Footnote 2
“2 Should a trial be required, the evidence will show that the allegedly omitted information was not material under the Basic standard. Because Mr. Perry’s motion is not based on materiality, however, there is no need for the Court to address or resolve that issue at this stage. There also is no need for the Court to consider scienter here, but if that issue ever needed to be tried, the evidence will show, inter alia, that Mr. Perry (a) never reviewed the May 12, 2008 TFR or the addendum to it, (b) was not aware that the Bank’s capital ratio would have been slightly below 10 percent on a double risk-weighted basis, and (c) was not advised by anyone that IndyMac should make additional disclosures on the risk-weighting issue. Accordingly, if the case were to proceed to trial, the SEC would be unable to prove either materiality or that Mr. Perry acted with intent to defraud.”
“…IndyMac’s statements about the Bank’s capital ratios in the May 12, 2008 Form 10-Q did not create any kind of false implication. The Bank’s operative capital ratio at March 31, 2008 as reported to its regulator on the TFR was 10.26 percent and the OTS really did consider the Bank well capitalized on that date.”
“The SEC’s claim on the risk-weighting issue ultimately is that IndyMac should have reported the hypothetical 9.96 percent double risk-weighted capital ratio to alert investors to the precariousness of the Bank’s well-capitalized position, and that failure to do so rendered the 10-Q misleading……That claim, however, cannot withstand scrutiny because the 10-Q indisputably did warn investors about the Bank’s tenuous hold on well-capitalized status.”
“As explained in our prior papers, not only did the 10-Q specifically disclose that the Bank might cease to be well capitalized and the potential risks if that occurred (SUF 16); it also explained that, if an April 2008 downgrade of bonds held by the Bank had occurred just a few weeks earlier, then the Bank’s capital ratio at March 31 would have been 9.27 percent….73 basis points below the 10-percent well-capitalized minimum. This warned investors of the precariousness of the Bank’s well-capitalized position far more emphatically than could any putative disclosure that the Bank’s capital ratio would have been 9.96 percent (i.e., just four basis point below the well capitalized minimum) if, hypothetically, it were required to double risk-weight subprime assets in calculating its operative capital ratio.”
“The SEC cannot meet its threshold burden of showing that IndyMac made a false statement or fraudulent omission concerning the risk-weighting issue in its May 12, 2008 SEC filings. Accordingly, Mr. Perry is entitled to summary judgment on that issue.”
Click here to access Supplemental Brief in Support of M. Perry’s 2nd Motion for Partial Summary Judgment in SEC Matter
Click here to access Declaration of Jason A. Levine in Support of M. Perry’s Motion for Partial Summary Judgment
Click here to access Excerpts from March 31, 2008 Thrift Financial Report