Customers wait to withdraw funds in Encino after IndyMac Bank failure in… (Karen Tapia-Andersen /…)
Former IndyMac Bancorp Chairman and Chief Executive Michael W. Perry has agreed to pay $1 million and be banished from the banking industry to settle government claims that he overloaded the Pasadena thrift with risky home loans before it collapsed in July 2008.
The Federal Deposit Insurance Corp. is dropping its $600-million negligence lawsuit against Perry in return for the personal payment and the right to seek $11 million from IndyMac's insurance carriers, Perry's lawyers and the FDIC said in statements released Friday.
The collapse of IndyMac is considered one of the early events that helped usher in the 2008 financial meltdown. A run on the bank's deposits wound up costing the FDIC insurance fund $13 billion — by far the most costly bank failure of the crisis.
Perry has continued to maintain that he did nothing wrong. A statement from the lawyers said he was settling "in large part" because the corporate insurance funds for his defense had been exhausted battling lawsuits brought against him and other former bank insiders.
"Mike Perry was a smart, honest and highly capable CEO who did all he could to save IndyMac Bank," said defense attorney D. Jean Veta of Washington, D.C.
Of the executives the government has accused of civil wrongdoing in the aftermath of the financial crisis, Perry was the most outspoken self-defender.
He even set up a website, http://www.nottoobigtofail.org, to dispute lawsuits brought by the FDIC, the Securities and Exchange Commission and private investors. Among other things, Perry noted that he had never sold his stock in IndyMac as the mortgage meltdown approached and then ripped through the industry.
Perry's lenders became the nation's largest issuer of so-called alt-A mortgages — home loans mostly based on borrowers' simple statements of their income rather than on tax returns. As such, they were commonly called "liar loans."
IndyMac's collapse was hastened when Sen. Charles E. Schumer (D-N.Y.) released a letter in June 2008 to the FDIC and other regulators, saying that "IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers."
Veta said the FDIC's filings acknowledge that the agency did not blame Perry for causing the bank to fail. Instead, she said, "the FDIC insisted on pursuing an equally baseless simple negligence claim, alleging that Mr. Perry should have had a crystal ball, seen the financial crisis coming and stopped making loans sooner than IndyMac did."
FDIC spokesman Andrew Gray did not dispute Veta's characterization of the case. He issued a statement saying: "The FDIC as Receiver of IndyMac has settled with Michael Perry in an agreement that will bar him from banking and that recovers $1 million in personal assets and up to $11 million of insurance policy money."
The FDIC sued Perry in July 2011.
His No. 2 at the bank, former IndyMac President Richard Wohl, previously settled FDIC negligence claims for $1.4 million — most of it covered by the bank's directors and officers insurance policies, the FDIC said last week. The agency had not previously disclosed that settlement.
In a separate suit, the FDIC accused three former executives of negligence at an IndyMac division that made loans to home builders. A federal court jury in Los Angeles last week ordered the three to pay $169 million to the agency.
That case included evidence that Perry had questioned the aggressive loans made by the home builder division of his bank — a demonstration, Veta said, that he had taken "sound fiscal actions" to try to save IndyMac.
A sweeping SEC fraud case against Perry was largely tossed out this year by a federal judge. He recently settled the sole remaining claim in that lawsuit for $80,000.