One of the Commission’s significant market crisis cases arose out of the collapse of IndyMac Bancorp, Inc. SEC v. Perry, Civil Action No. CV 11-01309 (C.D. Cal. Filed Feb. 11, 2011). The complaint named as defendants Michael Perry, former CEO and Chairman of the bank, and A. Scott Keys, the former Executive Vice president and CFO. At the time that case was brought, the SEC filed a related settled action against another former senior officer, SEC v. Abernathy, Civil Action No. CV 11-01308 (C.D. Cal. Filed Feb. 11, 2011).
Mr. Perry has now settled with the SEC, consenting to the entry of a permanent injunction prohibiting future violations of Securities Act Section 17(a)(3). He also agreed to pay a civil penalty of $80,000. See also Lit. Rel. No. 22502 (Oct. 1, 2012).
The original complaint against Mr. Perry charged scienter based fraud, alleging violations of Securities Act Section 17(a) and Exchange Act Section 10(b) as well as violations of 13(a). The complaint detailed a scheme involving Mr. Perry and others to deceive investors regarding the deteriorating condition of the financial institution he led. IndyMac engaged primarily in making, buying and selling residential real estate mortgages. That market collapses as the market crisis ensued in 2007 and 2008. Nevertheless, during the same time period Mr. Perry, according to the complaint, reassured investors and the public that the bank was financially sound and in compliance with its regulatory obligations.
Repeatedly in filings made with the Commission, Messrs. Perry and Keys made misrepresentations: “Defendants regularly received information regarding IndyMac’s rapidly deteriorating financial condition [in 2008]. Despite receiving this information, Defendants participated in the filing of IndyMac’s periodic reports and stock offering disclosures that made false and materially misleading statements and omissions regarding: (1) IndyMac’s liquidity; (2) IndyMac’s capital raising needs and activities; and (3) IndyMac Bank’s capital ratio, a key regulatory metric of a bank’s safety and soundness.” In connection with those misrepresentations defendants signed a false and misleading Form 10-K and authorized the filing of one or more false and misleading prospectuses, according to the complaint. The bank collapsed in 2008.
The intentional fraudulent conduct alleged merited the entry of a scienter based injunction, a finding of control person liability under Exchange Act Section 20(a), disgorgement and civil penalties the complaint claimed. The settlement did not provide for a scienter based injunction, control person liability or disgorgement. It did require a negligence based injunction and the payment of a first tier penalty. The settled companion case was based on alleged violations of Securities Act Sections 17(a)(2) & (3), negligent fraud.