“From: YYY To: Michael Perry Cc: AAAA, BBBB, CCC Date: Sun, 6 May 2012 08:11:18 -0500 Subject: Re: Daily Stock Price in 2008 and Daily DSPP Issuance in 2008 Mike — I’m going back over your DSPP emails in prep for XXXXX’s deposition tomorrow in NYC. This one, which relates to the immateriality of the DSPP, is great…
…and is one we will return to as we prepare for trial. Thanks for this analysis. YYY
On Apr 26, 2012, at 8:21 PM, “Michael Perry” wrote:
Here is the email we discussed earlier this evening. Love to get the team’s thoughts on this. thanks, mike
I am not a statistician or expert on securities disclosures and stock prices, but I think the SEC’s allegations against me and Indymac’s former CFO are ridiculous when you step back and look at the big picture (material issues).
Here is what I am talking about:
1. Indymac’s stock price declined 86.8% in 2007, from $45.16 at December 31, 2006 to $5.95 at December 31, 2007.
2. It declined every quarter in 2007.
3. It declined 10 of 12 months in 2007.
4. It declined 29% in Q12007, it declined 9% in Q22007, it declined 10.1% in Q32007, and it declined 74.8% in Q42007.
5. It declined 13.9% in Jan2007, it declined 11.7% in Feb2007, it declined 6.4% in Mar2007, it declined 5.6% in Apr2007, it rose 11% in May2007, it declined 13.1% in Jun2007, it decline 24.6% in Jul2007, it rose 10% in Aug2007, it declined 2.4% in Sep2007, it declined 43.2% in Oct2007, it declined 28.8% in Nov2007, and it decline 27.7% in Dec2007.
6. Based on Indymac’s December 31, 2006 stock price of $45.16 and its shares outstanding at that time, from the 2006 10-K of 73,017,356, Indymac had a total market value of $3,297,463,797.
7. Based on Indymac’s December 31, 2007 stock price of $5.95 and its shares outstanding at that time, from the 2007 10-K of 80,885,421, Indymac had a total market value of $614,729,200.
8. Investors lost $2.68 billion in market value during 2007 (81% of the market value at December 31, 2006).
This is what happened if you were an investor in Indymac in 2007, well BEFORE a single SEC allegation about Indymac’s securities disclosures. You were sitting there shell-shocked by the events of 2007, like I was given I did not sell a single share and in fact purchased 35,000 shares of Indymac stock for $1.03 million on March 23, 2007. And all of the above, happened BEFORE Indymac’s unprecedented Q42007 loss was known to management and/or disclosed to investors on February 12, 2008.
The above unprecedented shareholder losses occurred because investors clearly understood the material risks and uncertain prospects to Indymac and other financial institutions (especially those whose well-disclosed business models were tied to housing, mortgage lending, and the secondary mortgage markets) heading into 2008.
And on February 12, 2008 (ironically and really ridiculously the beginning of the SEC’s 90-day allegation period), we disclosed in an 8K filing the following material bad news in regards to Indymac’s fourth quarter of 2007, year 2007, and Indymac’s prospects:
1. A surprising and unprecedented $509 million after-tax loss for Q42007 vs. a $72 million after-tax profit for Q42006.
2. A huge loss for all of 2007; a $615 million after-tax loss vs. a $343 million after-tax profit for 2006.
3. Accumulated Other Comprehensive Loss (unrealized losses reducing common equity) increased a whopping 342% during 2007 to $139.2 million.
4. Book Value Per Share declined 40% during 2007, from $27.78 at December 31, 2006 to $16.61 at December 31, 2007.
5. Tier 1 Core Capital declined 16% in 2007, to 6.24% at December 31, 2007.
6. Nonperforming Assets (as a percentage of Total Assets), increased a whopping 635% in 2007 to an unprecedented 4.61% at December 31, 2007.
7. Loan production was $12.3 billion in Q42007, a 53% decline from the $26.3 billion produced in Q42006.
8. I opened the 2007 Shareholders letter stating the following: “2007 was a terrible year for our industry, for Indymac, and for you are owners.”
9. And I closed the 2007 Shareholders letter stating the following: “What happens if we are wrong (relative to the plan we laid out) and credit costs are higher or profitability is delayed further?” Then I went on to say the following: “And yes, things could get worse, including our potentially incurring more rightsizing costs, or selling non-performing assets in bulk at a loss or having to raise very dilutive capital…..”
And then three days later on February 15, 2008, I purchased 328,988 shares of Indymac stock at a total cost of more than $2.6 million.
Yes, market conditions for Indymac (and many others) got worse….far worse than we ever imagined……but “step back”……and think about the SEC’s allegations in the context of the above material facts.
By February 12, 2008, in my opinion, the “materiality” threshold for investors should have been VERY high….VERY. It would take something very big for shareholders to consider it material…..in my view.
Remember, in 2007 Indymac shareholders unfortunately lost $2.68 billion in market value, that is more than ten times larger than the $242.8 million in shareholder market value lost in 2008 (from January 1, 2008 through May 13, 2008); one full trading day after the end of the SEC’s allegation period. In fact, during the month January 2008, before any SEC disclosure allegations (alleging we mislead or omitted to inflate the stock price), the stock rallied 37.3%. From February 12, 2008 until May 9, 2008 (the period in which we allegedly inflated Indymac’s stock price), Indymac’s stock actually declined 58%, from $8.24 to $3.43. If we were misleading to “inflate” the stock (and we were not)….we sure did a pretty poor job. Finally, the SEC cites an 11% decline on May 12th and a 24% decline on May 13, 2008, as evidence that “the truth was partially revealed” and that’s why the stock declined so much. Their own expert says…..you can’t really measure this stuff and be statistically accurate, if there are “confounding disclosures” and there were a ton of them on this date. I would argue, as the SEC questioned me re., that the analysts two main focuses and “likely why” the stock declined post-release was as PPP noted in her email re. the analyst coverage: 1) continued uncertainty with respect to housing, credit losses and profitability, and 2) the plan showing the math of prospective book value per share dilution throughout the remainder of 2008. Bottom line, if shareholders on May 12, 2008 believed Indymac’s credit losses would be abating, and Indymac would be returning to profitability, and it wouldn’t have to issue any further dilutive shares…Indymac stock would have rallied considerably on May 12 and 13, 2008. I am sure of it. Also, these declines were not unprecedented. As the absolute stock price declined throughout 2007 and 2008….the daily stock price volatility increased significantly (see below analysis).
My kids school’s motto is “Action not Words”…….the SEC’s allegations are all minor wording disclosure issues…..not material financial issues for Indymac and its shareholders.
The SEC has manufactured a case…..with the benefit of hindsight and as you can see from Statements #5 through #11 on the blog, we are slowly but surely destroying each and every one of their meritless allegations…….but please don’t lose sight of the above “big picture”, as the SEC has done.
Other Points about the Stock in 2007 and 2008.
The SEC has the following in the complaint:
“….it closed on May 12, 2008, at $3.06 an 11% drop from its prior close of $3.43, on volume of 4.8 million shares. OnMay 13, Indymac’s stock fell 24%, closing at $2.32 on volume of 14.9 million shares.
Here are some facts I have derived from the stock price activity in 2007 and 2008:
1. I didn’t do a statistical analysis, but the daily price volatility (percentage change up or down) clearly rises as the stock price declines throughout 2007 and 2008.
2. The largest daily trading volume and highest percentage declines occur well after May, 12th….when the stock becomes a penny stock.
3. As I recall, if a stock goes below $5…..lot’s of institutional players have to sell, per their charters….this can put pressure on the stock price alone and increase volatility.
4. The 4.8 million share daily trading threshold……..cited in the complaint, is no big deal. In 2007, 38 (or 15%) of the trading days during the year had daily trading volume at or exceeding 4.8 million shares. From January 1, 2008 to February 11, 2008…..7 (or 25% of the total of the trading days) that had volume at or exceeding 4.8 million. From February 12, 2008 through May 13, 2008 (the end day cited in the complaint for stock prices)…..there were 6 (or 9% of the total of trading days) that had volume at or exceeding 4.8 million. From May 14, 2008 to July 14, 2008 (the first trading day after Indymac was seized by the FDIC), there were 14 (or 33% of the total of trading days) that had volume at or exceeding 4.8 million shares. After July 14, 2008……huge daily trading volumes occurred almost daily.
5. In Jan2007, there were two daily declines of 7% or more. In Feb2007, there were none. In Mar2007 there was one. In Apr2007 through Jul2007 there was none. In Aug2007 there were four. In Sep2007 there was one. In Oct2007 there were four. In Nov2007 there were five. In Dec2007 there were four. There was a 10% decline on Sep52007. There was 10% decline on Oct232007. There was an 11% decline on Nov7, 2007. There was a 10% decline on Nov152007. There was a 13% decline on Nov262007. There was a 10% decline on Dec42007. There was a 10% decline on Dec112007. There was a 13% decline on Dec122007. All before ANY SEC allegations.
6. In Jan2008, there were eight daily declines of 7% or more. There was a decline of 10% on Jan82008. There was a decline of 17% on Jan92008. There was a decline of 10% on Jan112008. There was a decline of 16% on Jan302008. All before ANY SEC allegations.
7. In Feb2008, there were four daily declines of 7% or more (two before and two after the SEC allegation period). There was a decline of 18% on Feb52008 (before the SEC allegation period). There was a decline of 10% on Feb282008 (after the SEC allegation period).
8. In Mar2008, there were seven daily declines of 7% or more (during the SEC allegation period when we were allegedly withholding information to inflate the stock price). There was a 20% decline on Mar32008. There was a 10% decline on Mar62008. There was a 13% decline on Mar122008.
9. In Apr2008, there were three daily declines of 7% or more. None above 10%.
10. In May2008, there were seven daily declines of 7% or more. The stock rose 22% on May12008. It declined 12% on May52008. Both moves BEFORE “the truth was allegedly revealed”. It declined 11% on May122008. It declined 24% on May132008. It declined 14% on May132008. It declined 16% on May142008. It rose 17% on May222008. It declined 11% on May272008.
11. In Jun2008, there were eight daily declines of 7% or more (well after “the truth was partially revealed”). The stock rose 11% on Jun32008. The stock rose 15% on June202008. There was a decline of 11% on Jun232008. There was a decline of 12% on Jun252008. There was a decline of 26% on Jun26 (caused by Schumer). There was a decline of 24% on Jun30 (caused by Schumer and our 8K filing on the bank run).
Bottom line……I think this additional information on the stock price shows that the stock became much more volatile on a daily basis as it declined throughout 2007 and 2008. Someone may be able to put all this together statistically….but at best, I think all the stock price data relative to disclosures is inconclusive……..the real conclusive facts are in the body of my email above.
P.S. I am going to look at DSPP issuance and see if I can see anything there.
Michael W. Perry