IndyMac trustee files breach lawsuit against former CEO, directors

By Caroline Salls

Pittsburgh, Nov. 16 - IndyMac Bancorp, Inc.'s Chapter 7 trustee filed a lawsuit Friday against several of the company's former directors and its former chief executive officer, alleging breach of their fiduciary duties, according to a filing with the U.S. Bankruptcy Court for the Central District of California.

The lawsuit names former chairman and CEO Michael E. Perry as a defendant, as well as former directors Louis E. Caldera, Lyle E. Gramley, Hugh M. Grant, Patrick C. Haden, Terrance G. Hodel, Robert L. Hunt II, Lydia H. Kennard and Bruce G. Willison.

According to the complaint filed by trustee Alfred H. Siegel, in response to IndyMac Bank's massive need for capital, which grew as the bank's problems worsened, Perry, together with the director defendants he led, "acted in a manner that not only minimized the possibility of saving the bank and Bancorp, but also maximized the damage and injuries to Bancorp."

Specifically, Siegel said Perry dismissed or failed to pursue numerous opportunities to raise capital from third parties that would result in dilution of his and the director defendants' ownership and control.

The trustee alleged that Perry drove a director who challenged his practices and objectives from the board, ignored inquiries from potential investors, failed to disclose relevant information to the board in a timely manner, and rejected any discussions that suggested that IndyMac Bancorp was struggling "in order to save face rather than address the actual financial condition of the entities he led."

As with Perry, Siegel alleged that the director defendants also knowingly breached their fiduciary responsibilities to pursue third-party capital, "as evidenced most obviously by their failure to even establish a board-level committee to address this issue until late April 2008 - less than three months before the company collapsed and long after it would have become apparent to any competent director or manager that Bancorp and the bank could only survive by raising billions of dollars in capital."

Despite the need for additional capital, Siegel said the defendants caused IndyMac to "downstream" hundreds of millions of dollars to the bank, serving "no conceivable purpose other than to drain Bancorp of its assets and extend Perry and the director defendants' stay in their positions for a few more months until the bank collapsed."

"The defendants knew or reasonably should have known that the bank was on an unsustainable path and that Bancorp had to increase dramatically and enormously the bank's capital via a transaction that would oust existing management and substantially dilute any Bancorp stock that the defendants held," Siegel said in the complaint.

IndyMac, a Pasadena, Calif., bank holding company, filed for bankruptcy on July 31, 2008 in the U.S. Bankruptcy Court for the Central District of California. The Chapter 7 case number is 08-21752.

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