FDIC Settlement Documents and M. Perry’s Comments Re. Settlement
Attached below you will find the key settlement documents (and my comments) related to the FDIC-R’s meritless, $600 million, civil negligence lawsuit against me.
Simply stated, I agreed to settle the FDIC-R’s lawsuit for the following reasons:
- I continue to “DENY” the FDIC-R’s allegations against me in the formal settlement agreement. This was important to me, because these allegations were not true.
- The settlement documents state clearly that the FDIC was not alleging that I caused IndyMac Bank to fail and/or the FDIC insurance fund to suffer a loss. This was important to me. I did not cause IndyMac Bank to fail or the insurance fund to suffer a loss.
- We had run out of insurance to cover legal defense costs, because the D&O insurers had improperly denied me (and others) coverage for various matters under a second “tower”/year of insurance. Unbelievably, more than four years after IndyMac Bank was seized by the FDIC, no factual discovery has yet occurred in this matter. As a result, a trial likely would have been six months to a year away and would have cost me millions more to defend against and untold hours of my time.
- The federal judge in this matter had ruled that because IndyMac Bank was a California-based firm, my judgments as CEO were not protected by the common law Business Judgment Rule, as they are in nearly every other state in the union, and therefore the FDIC-R could sue me for “ordinary negligence” (and the 9th Circuit refused to hear our appeal of this issue until after trial). Because of these rulings, it was my view that a jury’s judgments in this case could inappropriately be infected by hindsight and/or anti-banker sentiment; so there was a risk that I might not obtain a fair trial and/or a proper decision (I believe strongly that the recent home builder division management jury verdict was an improper decision).
- While I and my family had to personally pay $1 million to the FDIC-R to settle this meritless case, I am not financially responsible if the FDIC-R is unable to collect any or all of the remaining $11 million from the D&0 insurance carriers (a real risk given the D&O insurers’ actions to-date and related insurance litigation).
To obtain this settlement, the FDIC used its awesome government power to force me to accept a separate enforcement action that prohibits me from participating in the affairs of banks (my long-time profession). The bottom line is that the FDIC inappropriately leveraged the FDIC-R’s meritless $600 million civil lawsuit against me to obtain this banking prohibition.
At one point, we asked the FDIC to just settle the FDIC-R’s lawsuit (the FDIC-R, as a receiver of IndyMac Bank, has a fiduciary duty to settle to for the maximum amount it can obtain to minimize losses for the deposit insurance fund) and to sue me in a separate enforcement action, as required by banking law, in order to try and obtain a banking prohibition. The FDIC refused. Why? Because the federal law that allows the FDIC to obtain an enforcement action/”banking prohibition” requires that the FDIC prove that I “engaged or participated in unsafe and unsound banking practices” and that “such practices demonstrated a willful and/or continuing disregard for the safety and/or soundness of the bank”; a higher standard of proof than California’s “ordinary negligence”. Also, the five-year statute of limitations for such actions may have expired on November 1, 2012 (the last of the $10 billion in loans in question were funded in October 2007 and transferred to held for investment, and the credit mark-to-market loss was recognized on November 1, 2007; importantly, even after this loss was recognized IndyMac Bank remained well-capitalized at December 31, 2007 because we had prudently raised $676 million in capital in 2007) .
In the FDIC’s prohibition order, whose allegations I “neither admit nor deny”, I think the following excerpt says it all: “The FDIC considered the matter and has reason to believe:”….As I said, four and ½ years have come and gone since IndyMac Bank was seized by the FDIC and yet no factual discovery related to the FDIC-R’s litigation against me has occurred (and no lawsuit seeking an enforcement action against me was ever filed), so no detailed allegations were enumerated in this prohibition order; only a generic listing of phrases like “unsafe and unsound banking practices”. I am also confident that there was no evidence or sworn testimony during their pre-litigation, investigative phase, that would support the FDIC-R’s allegations against me (and much evidence and sworn testimony that would refute them).
The bottom line is that the FDIC used a meritless and frivolous typical plaintiff’s bar civil lawsuit (that cost me millions to defend myself against and where there was some minor yet significant financial risk to me and my family of an incorrect jury verdict) and their awesome government power to force me to accept an enforcement action/”banking prohibition”. I guess they were afraid that some bank might hire me, if left to their own free market decisions? Should branches of our federal government really be allowed to sue individual Americans civilly in this manner and take their assets, defame them and restrict their ability to make a living? I don’t think it is right and I think most American’s would be disturbed to learn how these (nearly unaccountable) bureaucracies within our government operate. In my view, they sure don’t seem to care much about the truth and individual American’s rights and liberties.