by Brian Mahany
There is plenty of blame for the housing market meltdown. Ask anyone on Main Street, America and most will quickly (and correctly) point the finger at the Wall Street and the big banks. Those folks, however, will likely deny everything. Last week the FDIC was successfully able to hold one big bank executive responsible after it settled charges against former IndyMac CEO Michael Perry.
Perry was at the helm of IndyMac FSB when the banking giant failed. It was one of the first of many banking failures after the housing and lending markets crashed in 2007 and 2008. The FDIC lost hundreds of millions of dollars when the bank failed. As most readers know, the Federal Deposit Insurance Corporation insures bank deposits. Without insurance, many people might not feel safe putting money in the banks. Banks leverage deposits to make loans and grow the economy.
While the housing market was collapsing in 2007, the FDIC claims Perry was engaging in increasingly risky transactions. According to a lawsuit filed in July of 2011, Perry allowed the bank to write $10 billion in risky loans between April and October 2007, knowing that the credit quality of those loans was poor.
The FDIC recovered internal emails showing that Perry used the words “eroding”, “tough,” “disaster,” “hurricane,” “panic” and “illiquid” to describe the market. Despite that, and despite warnings from auditors and senior management, Perry thought he could increase IndyMac’s market share.
Why not? It’s easy to make such a gamble when you know that the FDIC and ultimately taxpayers will be left footing the bill if the gamble fails. The rest is now history. Obviously, Perry’s strategy resulted in an epic failure that was so large it caused the bank to fail.
The FDIC sued Perry claiming he personally was responsible for the collapse of IndyMac. Last week Perry agreed to a $12 million settlement. It may be a drop in the bucket but suing individual bank mangers and officers should send a message to the banking community that there are consequences to one’s actions.
We believe an even better message would be delivered if federal prosecutors were able to place a few of these managers in prison. While civil suits are certainly helpful, often the senior managers have directors and officers insurance meaning they don’t actually feel the pain. In the FDIC case, the agency sued Perry for “negligence.” Suits for negligence are covered by insurance while fraud claims are not covered. The FDIC’s job to recover as much money as possible for depositors. Unfortunately, the risk to those truly responsible for the market mess isn’t as great when they can simply ask an insurance company to write the check.
The fraud lawyers at Mahany & Ertl represent businesses and individuals hurt by banking fraud. Our lender liability lawyers represent the whistleblower in the largest federal false claims act case presently pending in the United States, HUD’s $2.4 billion case filed against Allied Home Mortgage.
If you or your business has been hurt by the actions of a bank, stockbroker or mortgage company, give us a call. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept in complete confidence.
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