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.