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

Posted on August 23, 2012, in Postings. Bookmark the permalink. Leave a comment.

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