Almost three years to the day of seizing IndyMac Bank, the Federal Deposit Insurance Corp. (FDIC) launched a civil action against its former CEO, saying he “negligently” allowed the thrift to keep making risky loans despite signs of market stress.
The FDIC’s lawsuit, filed midweek, asks a U.S. District Court judge in California to make Michael Perry pay at least $600 million to help cover losses from the receivership.
“Perversely, instead of enforcing credit standards, Perry chose to roll the dice in an aggressive gamble to increase market share while sacrificing credit standards, even though a reasonable banker of a depository institution would have suspended, limited, or stopped the production of these risky loans during this time of known, unprecedented, and escalating risks,” the FDIC said.
IndyMac’s collapse in July 2008 was the first big FDIC seizure in the mortgage crisis. The thrift started out in the mortgage business three decades back as a nonconforming conduit launched by Countrywide Financial Corp. (CFC).
Eventually CFC spun the unit out and in time IndyMac obtained a thrift charter. It was based in Pasadena, Calif., once the headquarters of Countrywide.
The court action against Perry now stands as one of the highest-profile cases brought by the agency under its authority to sue failed-bank managers. Just eight such lawsuits have been filed so far, but the FDIC has authorized legal action to seek nearly $7 billion in claims from former directors and officers.
The Perry suit alleges he did not cease IndyMac’s operation of a $10 billion pool of risky mortgages meant for resale, even though, the FDIC said, Perry himself acknowledged instability in the secondary market.
“Unable to sell these loans as intended into an illiquid secondary market, Perry lost his gamble and IndyMac was forced by the fourth quarter of 2007 to transfer the loans into IndyMac’s investment portfolio where the loans ultimately generated substantial bank losses in excess of $600 million,” the FDIC said.
In a press release emailed late Wednesday evening, lawyers for Perry called the FDIC’s claims “baseless.”
“Mr. Perry led IndyMac with integrity and intelligence. The FDIC’s belated claim that Mr. Perry was somehow ‘negligent’ is dead wrong,” said D. Jean Veta, a partner for Covington & Burling.