FDIC Silenced Whistleblower in IndyMac’s Executives Fraud Charges

IndyMac executives were individually charged for fraud by the Securities and Exchange Commission today but the FDIC has known about these problems since they took the bank over in July 2008.

Mike Perry, CEO and Chairman of IndyMac Bank, was sued for securities fraud by the S.E.C for misleading investors about the capital and liquidity levels of the bank before they issued preferred stock less than a year before the $8 billion dollar subprime lender was seized by the FDIC. They also nabbed his partner in the alleged accounting fraud, Scott Keys, EVP and CFO of the failed bank. Keys had prior experience with the inner workings of SEC filings when he was a partner for accounting giant – Ernst & Young. Both men claim the SEC suit is meritless. I had to laugh at that.

You see I witnessed the FDIC, while in-charge of facilitating the sale of IndyMac in 2009, force a whistleblower to resign when they found out this person was leaking news to me. Reports I first broke at the New York Post (2008) detailed what the FBI investigation was focusing on, how the bank’s regulator (the Office of Thrift Supervision) missed red flags and fraud Perry allegedly executed with his family in IndyMac’s construction lending business. The whistleblower shared detailed emails sent to IndyMac’s executive team warning about mortgage putback risk, lax due diligence process in RMBS securitizations, losses that would affect capital levels and more.

While I watched most of my peers in the main street media react in surprised shock to the news, I knew this charge was long time coming. In fact, the SEC charge only details a portion of the fraud insiders at IndyMac detailed for me in 2008.

What I am troubled by is the role the FDIC played in removing an internal whistleblower to stop the information flow to the media. They muscled this person with threats of an internal investigation if they didn’t resign and give up their severance. In fact I watched Evan Wagner, IndyMac’s press man who continued to work for the FDIC when they took over, brag to a Southern California journalist that they’d just ousted their internal leak. Wagner is now at Union Bank.

This is an event that’s bothered me for some time, but for fear of drawing up more controversy for the whistleblower and my duty to protect their identity I didn’t speak out. If the Dodd-Frank whistleblower laws were in place in 08 they could have sought refuge and reward for their truth seeking efforts, but this person wasn’t motivated by financial rewards. I find it troubling the FDIC didn’t keep them on staff to sort out who was lying and destroying evidence inside the failed bank. Based on what I saw, the evidence should have led to more charges against the executives of IndyMac.

While it’s interesting to see the SEC finally charge a CEO of the financial crisis with securities fraud there is so much more work for them to do. So here is a hint from emails and conversations I tracked from 2007-2009.

Ruthanne Melbourne – Chief Risk Officer
Rick Leiber – Chief Credit Officer
Kirk Johnson – Head of Investment Portfolio

How much did each of these individuals feed false or misleading information to their CFO and CEO which contributed to today’s charges? It’s likely if the case settles we will never know.

NOTE: Scott Reckard at the LA Times has links to the SEC complaint and quotes from the IndyMac executives trying to spin their innocence.

UPDATE 9-18-2011: Mike Perry creates a blog to combate the FDIC and SEC litigation against him. He even post interal communication between him and SEC as they negociated a settlement last year. Most market observers see Perry as another guy in total denial because he thinks ‘the crisis just happened to him’. Perry is known to fight back and fight dirty so I wouldn’t be surprised if this case actually makes it to trial.

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Comments

  1. jack inrichmond says:

    great article !

    i couldn't help but think.. the whistle-blowers should be receiving generous rewards for providing info leading to convictions.

    as it stands now, there is little incentive for whistle-blowers to step forward. the risks are huge.

    the regulators do not have enough people to be investigating the innner workings of all companies. we rely on insiders to inform the public of crimes. therefore, i believe there should be a nationally implemented program to reward and assist whistle-blowers. convictions on corporate fraud cases should pay out handsomely for the whistle-blower. inspire people to step forward.

    …just my thoughts…

  2. Tao Jonesing says:

    No criminal charges have been filed. This is just a civil lawsuit. For the SEC to claim that they've "charged" the banksters with anything is as false and misleading as what the banksters did.

  3. Time has come to stand up against banks’ deception, false representations, fraud. Time has come to recognize millions of homeowners as the victims of the same fraudulent business model!

    "Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws." – Plato (427-347 B.C.)

  4. SiriusNews says:

    please investigate this story

  5. @Tao – You are right the SEC can only civilly sue the IndyMac Executives for what most consider criminal behavior. The CA AG would need to grow some balls and charge them if these guys are ever to see jail time. Considering most of the investors in IndyMac stock would love to see these executives in jail , I'm going to stick to creative liberties here and write they were charged with wrongdoing. If you sue someone ,civil or criminal, you are still charging them with intent to do something you think the courts will agree is wrong and thus warrants damages.

  6. freedom to speak says:

    Let me tell you of a related scam that thesanta rosa press democrat has just started following. It involves a couple of borrowers named Bijan Madjlessi and Glenn Larsen from Marin County who have a trail of LLCs, strawman borrowers to skirt legal lending limits and scams they have perpetrated over the years at California banks large and small. Estimates are that they have $200 Million in commercial loan defaults including many deals in Sonoma County and the Reno Sundowner Casino to Condo conversion that failed then miraculously caught fire.

    Brian Melland and Sean Cutting of Sonoma Valley Bank and M. Cary Calkin of PFF Bank & Trust both which failed are all key bankers who accepted gifts, jet and boat trips, European cruises etc…None have been brought to justice yet. go to youtube "sonoma valley bank" for a series of short but informative cartoon chapters.

  7. freedom to speak says:

    I neglected to say they beat Indymac for at least $30 Million.

  8. freedom to speak says:

    List of banks involved discovered so far-

    Sonoma Valley Bank -Sonoma – Failed(Now Westamerica)

    Charter Oak Bank -Napa- On the brink(merger w/bay comm?)

    PFF Bank & Trust-Pomona-Failed (Now US Bank)

    Napa Community Bank-Napa-Failed (Now Rabobank)

    Indymac-Failed

    Another scam these gentlemen have pulled is they are foreclosed on/or the bank fails and send in straw man buyer to buy back their project at cents on the dollar from the FDIC.

    I am disgusted by FDIC regular audits, which were the quality of Madoff SEC audits.

  9. SonomaBanker says:

    Teri, my Sonoma Valley Bank failed Aug 20th last year. They had straw-buyers and straw borrowers tied to Bijian Madjlessi who also had millions lent to IndyMac, United Commercial Bank, PFF Bank, Sonoma Valley Bank, and another Napa institution Charter Oak is on the ropes choking from these toxic assets.

    I worry the FDIC bears conflicts since they came into SVB for 5 exams from 2005 and failed to ID lending lilmit violations and tie the LLC's all related $55+ million about 2x capital. They could have limited the exposure to maybe $10-$20 million and not $50+ million as it climbed to.

    I feel the FDIC may not come clean to avoid egg on their face. They quoted in this investigative news article below by a local NY Times affiliate that they have no intention of doing a Material Loss Report…which would out their role in the failure.

    link —> http://www.pressdemocrat.com/article/20110123/ART

    Here also is a cartoon parody of the FDIC dramatized cover from YouTube

    link —> http://www.youtube.com/watch?v=CeKI8IYLijw

    Can you help blow the whistle on this systemic fraud case?

  10. SonomaBanker says:

    Dodd-Frank raised the threshold for the FDIC to complete "Material Loss Reports" on failed institutions to $200 million from $20 million. There is another class of report called "In-Depth Review" for banks failing under the $200 million loss threshold but they are optional on a case by case basis.

    Sonoma Valley Bank was a publically traded company and a SEC reporter but its relatively small by comparison to IndyMac. SIG TARP may be interested in their nearly $10 million loss and the FBI, one would think, would be interested in a fraud case involving straw-man buyers and straw-man borrowers that mislead a Federally insured financial instituion but that remains to be seen.

    More than 1300 shareholders in Sonoma Valley sleepy little winecountry, were impacted and really the entire valley. But the far-reaching ramifications totals hundreds of millions when you consider the systemic exposure to IndyMac, United Commercial Bank, PFF Bank, Sonoma Valley Bank, and Charter Oak Bank.

    Bloggers have traced these deals between California and into Nevada and suspects a wider reaching exposure if the thread continues to be pulled.

  11. Northbay Reporter says:

    This story is very true and it goes way deeper than they have yet to admit and is bigger they they have yet to find out.

    There are over $400,000,000.00 in fraudulent loans through this Marin Developer: Bijan Madjlessi and his over 30 LLC's. This is a Madoff style grand scheme to rip of banks, investors, and the general public. How do I know? I was there. I was appalled and I stood up to them, since then my home & business has been vandalized, my car was stolen and my credit ruined. (I am not making an accusation, I am saying its a coincidence that has given me much food for thought)I will not give up on these crooks until they are jailed. It is just amazing to see how the trail of thievery leads so high up the food chain. No wonder this has been swept under the rug for so long. They have the power to squash anyone that gets in their way. The Truth Shall Prevail.

  12. freedom to speak says:

    The FDIC may be trying to bury it BUT rumor is there are other federal agencies sniffing around as of yesterday. I would say the borrowers are fully defensive right now and busily so although they still draw income from their slum Petaluma apartments. You are not alone. Many in Sonoma are pissed off, especially at the Sonoma Index-Tribune for spinning and then trying to bury the story. The pressure may force FDIC, who just announced they didn't extend there Irvine temporary office lease and will leave in 2012, to unzip their fly. But the actions have started against a current reported count of 109 bankers. The guy from PFF (now US Bank) I understand is still in business and allowing the borrowers to collect rents while the mortgage goes unpaid in Petaluma ($125,000 a month). A lot of people need to be prosecuted. In Sonoma, the whole bank board deserve an healthy interrogation. I'd love to be there.

  13. freedom to speak says:

    Jesus Teri,

    New info says that Sonoma Valley Bank was complicit in setting up lines for contractors and others who just wanted to get paid

    the money Bijan Madjlessi owed them. This is a Sopranos style bustout of individuals bank accounts who never had any intention to take a loan or give Bijan access to their money, which we are now hearing took place at Sonoma Valley Bank and if it happened there it probably happened everywhere. Madoff was right the FDIC DIDN"T WANT TO KNOW.

  14. freedom to speak says:

    Let be more clear because I left some facts out. Watch this.
    http://www.youtube.com/watch?v=qBsE43OdXBg

  15. SonomaBanker says:

    The following is a parody cartoon that outlines the FDIC cover-up and responsibility they bear…lending limits, for five or more exams. There is a series on YouTube but this one highlights regulators.

    link —> http://www.youtube.com/watch?v=CeKI8IYLijw

  16. freedom to speak says:

    I hope you can handle this topic because I hear another local goes down tomorrow. If you have comm. underwriter contacts at IndyMac they're sure to know the Bij.

    Anyway, I spammed BL's site so much about this she banned me. I guess 1/2 a Bil in Cali ain't the new killin' it. :)

  17. SonomaBanker says:

    Charter Oak Bank of Napa failed tonight after choking on more than $5 million in losses from former Sonoma Valley Bank toxic assets. How many more banks have to fail in the wake?

    If only the FDIC had seized these toxic assets August 20th, 2010 when Sonoma Valley Bank failed, Charter Oak would still be standing. The FDIC should have taken these assets, paid Westamerica and Charter Oak par value for the assets, and worked to collect the loans using Government resources. The FDIC knew there was straw man activity in Bijian Madjlessi relationships because they chased the loans up the 101 from Pasadena at IndyMac, PFF Bank, and United Commercial.

  18. freedom to speak says:

    And…down she goes. Charter Oak Bank of Napa. Just another victim of Bijan and dirty Sonoma Valley Bank officers and directors AND lax FDIC audits for years. Tragic. The job losses, the wiping out of mostly local shareholders. Sure CO had a duty to properly underwrite BUT there is an element of trust between local bankers, ESPECIALLY when all of your FDIC reviews are "clean". The FDIC chose to let the game continue. They could have stopped it. Perhaps the FDIC or OTHER agencies wanted it to continue for a reason.

  19. SonomaBanker says:

    The FDIC seems to have missed another one, (or covered up again). This parody cartoon depicts the FDIC blunders and it resulted in another failure in Napa Friday night at Charter Oak Bank.

    link –> http://www.youtube.com/watch?v=UvF2_os40_4

  20. taux rachat de credi says:

    tres interessant, merci

  21. Freedom To Speak or Somoma Banker

    Do you know who the regulator was/is at these Northern Cal community banks.

    Likely the now defunct OTS – right. Keep in mind it's the govt regulator who has to inspect 1st and issue a C&D before the FDIC can really do much. Now Dodd-Frank has changed some of that but you might also need to to look at your State Banking Commis role in not inspecting these banks

  22. freedom to speak says:

    Teri. I defer to SonomaBanker (who I believe is an banking EXPERT) on who had most jurisdiction but there is state oversight overlapping FDIC review here so a whole lotta rubberstampin' goin on. Another interesting thing about SVB is the apparent lock down on real news reporting as all or most of the Board members were SV Chamber of Commerce chums and while the Board didn't get paid they were able to pimp there businesses for years, as is typical. This relationship included the premiere local newspaper which spun it as "the FDIC stole our bank" and ran interference pretty hard for these folks. And then when taking down related articles off their website didn't stop blogging dissenters the newspaper took the whole comment function down and won't go near a banking story.

    Incidentally, there is a wikileaks type cache of docs that exists

    and although people in town are afraid of these important town shakers, a few of us are going to see this through.

    If you want more read the press democrat stories and watch the little youtube cartoons on Sonoma Valley Bank. Its quite a local cover up with a nice macro economic banking link sprinkled in. In any event, cases started 2 years ago are just now starting to produce enforcement actions, so perhaps the bottleneck has been cleared.

  23. SonomaBanker says:

    As for our California State Banking Department (Dept of Financial Institutions) they can't knock their way out of a wet paper bag. Understaffed, under paid, under qualified, take a back seat to Federal Regulators, copy the Feds work even when they lead joint exams. Even though technically speaking they breath lif into a charter, seize the charter at time of failure, and enforce legal lending limits in all but the OTS and OCC banks, they are toothless.

    They too have blood on their hands as they also came into Sonoma Valley Bank approx 5 annual exams between 2005-2010 and missed legal lending limit tie-ins to Madjlessi and Larsen affiliates but most don't see them as a major factor. They are not really part of the story. They would not be responsible for piecing together a wide-scale cover-up, conspiracy, RICO, or systemic issue like this one unfolding particularly as it goes across State lines.

    IRS, SIG-TARP, FDIC-IG, FBI, and perhaps SEC are involved in this one. State Regulators haven't much jurisdiction.

  24. SonomaBanker says:

    Teri, this link is to a cartoon dramatization that describes an elaborate scheme by Madjlessi against IndyMac Bank involving Sonoma Valley Bank as lived by an experienced insider witness who was harmed.

    link —> http://www.youtube.com/watch?v=2hxOpkmWick

  25. SonomaBanker says:

    The OTS regulated IndyMac who failed 7-11-08, but they are not defunct they are part of the Treasury and though some argue they should be defunct they most recently screwed up United Western Bank a multi-billion failure in Denver just a couple weeks ago (though not related here just recent example of their handywork).

    Vineyard Bank, NA is an OCC National Bank failed 7-17-09 from Rancho Couco.

    United Commercial-San Francisco (failed 11-6-09), Sonoma Valley (failed 8-20-10), and Charter Oak-Napa (failed 2-18-11) all were regulated by the FDIC and the California DFI.

    All these banks were under C&D’s for 6-24 months on average before failing.

    The point is these are commercial banks not thrifts dealing in mortgages. These are multi-million commercial deals.

    This duo Bijian Madjlessi and Glenn Larsen of Marin County defrauded all the above banks but most importantly they defrauded IndyMac in the Construction Department multi-family/mixed-use projects and may have been related to the coverup of the whistleblower you describe in your article. They failed a $35 million loan at IndyMac, found a “straw-man” James House to form 101 Houseco, LLC and got Sonoma Valley Bank to finance a $5 million deep discount purchase of the asset. The bilked FDIC funds out of the $30 million they lost at Indy, then lost another $5 million (some cash out at closing to the dynamic duo) at Sonoma Valley Bank.

    The same FDIC that covered up your whistleblower at IndyMac, knew Madjlessi was using fraudulent “straw-men” back as far as 2008, marched up the 101 to Sonoma in 3Q2009, busted up his ring of LLC’s, again knowing he was using fraudulent deals, and instead of quarantining the assets let the cancer spread over to Charter Oak Bank in Napa. Two other healthy banks Westamerica and Rabobank also have pieces but are large enough to swallow without incident.

    The point is the FDIC appears to have known of fraudulent suspicious activity with Madjlessi and Larsen since 2008 yet from some perspectives appears to be covering up their earlier mistakes for fear of additional scrutiny and because they got beat up so bad at IndyMac. They sacrifice these Wine Country Banks as lambs at the foot of the altar to prevent more egg on their face but likely could have reduced risk at Sonoma if they caught the legal lending limit issues from 2005-2010 (they missed) and could have prevented half of the losses that failed Charter Oak Bank in Napa if they handled the toxic assets appropriately.

    Two banks failed with FDIC blood on their hands…not saying other issues weren’t present but the FDIC is sharing in responsibility and needs busted wide open.

    It dovetails nicely off the IndyMac whistleblower coverup.

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  28. bankalchemist says:

    Straw borrowing is extremely difficult to hide for one reason you have to move funds from Bank A to B to C and the Fed can link the transactions. They just gathered up these vitamin sales folks in Utah with over 50 different straw accounts and bogus businesses. Not only will they catch these clowns they will link the banks and all whom assisted them. Then we have Charter Oak Bank with Brian Kelly who is trying hard to spread the blame of failure on anything or anyone other than himself. My guess is that as the facts are gathered which usually take 60-90 days and shareholders would like to collected on their ownership position someone on the inside will roll on the kingpins. (hey 44 cadillac where are you)bankalchemist.

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  30. SEC charges were too long in coming. Many of the top execs at Indymac should be investigated.

  31. concerned says:

    I know Evan Wagner of Union Bank personally. He had a secret wedding with Michelle Kramer in Las Vegas. Evan started dating Michelle when she was living with another man. You do need to question Evan's moral charachter and how he conducts himself professionally.

  32. Yolanda Gibson-Michaels says:

    I reported FDIC et al fraud since 2004 to present. Check out my facebook page regardng FDICs reported fraud.

  33. Mr GlassMan says:

    Sonoma Valley Bank gets shut down due to its dealings with Bijan Madjlessi, then Bijan gets arrested this week for filing $3.4 million in double insurance claims for a suspicious fire on a building in the hole for $50 million in loans that went bad too. This is only the beginning. The stockholders of Sonoma Valley bank are finally going to find out just what kind of deals were made with Bijan by Brian Melland and Sean Cutting that sold the investors all down the river. Check out the YouTube Videos that detail the crime spree: http://youtu.be/oX-VfHttlLA

  34. Mr Glassman says:

    Cyrus Massoumi · President at ADEPTO, INC
    I am Bijans Nephew. Far from defending him – I think that the Marin IJ is missing on reporting on the more hazy activities of Menlo Oaks. The Press Democrat story is not adequately reported – according to the article by P.D. the bank lost tens of millions on loans Bijan defaulted on – a huge sum for a small bank – this most likely caused them to default.
    On a personal note: My grandfather – Bijans father in law passed away in January. My grandmother tried to kill herself a week later. Bijans wife Beguneh – (who if she underwent psychological evaluation would most likely be diagnosed as a psychopath) – rushed to the hospital right after the attempted suicide – (I was the one that found her). — After this Beguneh alienated my mother and took my grandmother back to their $13M french style house in Mill Valley. —- They for months were desperately trying to manipulate my grandmother in order to manipulate my grandfathers will. My grandfather was a business man and educated – my grandmother did not have those luxuries. —– The day after my grandfather died Bijan offered my mother his “in-house” lawyers in order to help with the “estate planning”. —— They are thieves and the scum of the earth – I have been in their house many times and they live in utter luxury. They have a son Michael who barely knows how to communicate at the age of 24 who has an unlimited credit card which he spends $10,000 a month buying sushi and clothes -

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