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.