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Tripp, Et Al. V. Indymac Bancorp Inc., Et Al. 07-CV-01635-Class Action

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Tripp, Et Al. V. Indymac Bancorp Inc., Et Al. 07-CV-01635-Class Action ryn-Y , Lionel Z. Glancy # 134180 Frederick W. Gerkens, III GLANCY BINKOW & GOLDBERG LLP 1801 Avenue of the Stars, Suite 311 cOU+RT Los Angeles, CA 90067 K. U.S D+a tIC' (310) 201-9150 Liaison Counselfor Plaintiffs S A Y :;:: - CEPIIf Y Michael K. Yarnoff (Pro Hac Vice) 13Y ffl Christopher L. Nelson (Pro Hac Vice) John J. Gross (Pro Hac Vice) SCHIFFRIN BARROWAY TOPAZ & KESSLER, LLP 280 King of Prussia Road Radnor, PA 19087 (610) 667-7706 Lead Counselfor Plaintiffs UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WAYMAN TRIPP and SVEN Case No. CV 07- 1635-GW (VBK ) MOSSBERGER, Individually and on Behalf of all Others Similarly Situated, CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS Plaintiff, OF SECTIONS 10(b) AND 20(a) OF vs. THE SECURITIES EXCHANGE ACT OF 1934 INDYMAC BANCORP, INC.; MICHAEL W. PERRY; SCOTT KEYS JURY TRIAL DEMANDED and S . BLAIR ABERNATHY Defendants. DOCKETED em cm SEP 1 1 2007 BY L:!42 01 CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) .AND 20(a) OF THE SECURITI EXCHANGE ACT OF 1934 -I O RI GIN AL 1 Lead Plaintiffs, Wayman Tripp and Sven Mossberg (collectively, 2 I "Plaintiffs" or "Lead Plaintiffs"), individually and on behalf of all others 3 4 I similarly situated, by and through their attorneys, allege the following based upon 5 personal knowledge as to themselves, and information and belief as to all other 6 I matters, including an investigation conducted on behalf of Plaintiffs' counsel. 8 This investigation included a review and analysis of all filings made with the 9 Securities and Exchange Commission ("SEC") by IndyMac Bancorp, Inc. 10 ii ("IndyMac" or the "Company") during the relevant time period, as well as 12 securities analyst reports, press releases, media reports and other publications 13 I 14 issued by and through the Company, and interviews with numerous former 15 I employees of IndyMac. 16 ACTION 17 NATURE OF THE 18 1. This is a class action brought by Lead Plaintiffs on behalf of all 19 I persons and entities who purchased and/or otherwise acquired common stock of 20 21 IndyMac (the "Class") from January 26, 2006 through January 25, 2007, 22 inclusive (the "Class Period") and were damaged thereby. Lead Plaintiffs seek to 23 24 pursue remedies under the Securities Exchange Act of 1934, 15 U.S.C.S. § 78 et 25 seq. (the "Exchange Act"). 26 27 2. Defendant IndyMac is the holding company for IndyMac Bank 28 F.S.B., which operates as a hybrid thrift/mortgage banker. The thrift banking CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -2 segment of IndyMac invests in loans originated by various product lines, 2 including single-family residential mortgage loans, home construction financing, builder construction financing facilities and mortgage backed securities. IndyMac's mortgage banking segment originates loans through multiple channels, including mortgage brokers and bankers, financial institutions, realtors and homebuilders. The mortgage banking segment also provides commercial loans to homebuilders for the construction of new single-family residences and 10 11 generates reverse mortgage products for seniors.' 12 3. Throughout the Class Period, Defendants falsely portrayed IndyMac 13 14 as a company that was, and would continue to be, financially stable despite 15 industry-wide downturns and that this stability was a result of, inter alia, the 16 17 quality of and success of the Company's underwriting, hedging activities and 18 strong internal controls. Defendants accomplished their charade by issuing a i9 series of false and misleading statements regarding the Company's forecasted 20 22 earnings, compliance with the internal control requirements mandated by 22 23 24 ' In addition to IndyMac, the following individuals are defendants in this action: Michael W. Perry, Chief Executive Officer 25 and Chairman of the Board ("Perry"); Scott Keys, Executive Vice President and Chief Financial Officer 26 ("Keys") and S. Blair Abernathy, Executive Vice President, Specialty Mortgage 27 Lending ("Abernathy") (these individuals are, collectively, the "Individual Defendants"). IndyMac and the Individual Defendants are, collectively, 28 "Defendants." CLASS ACT ION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(n) OF THE SECURITIES EXCHANGE ACT OF 1934 -3 1 Sarbanes Oxley, and the ability to successfully hedge against the effects of 2 nonperforming or otherwise impaired investments. 3 4 4. The falsity of Defendants' Class Period statements was revealed on 5 January 25, 2007, the last day of the Class Period, when Defendants issued a 6 7 press release (the "January 25, 2007 Press Release"), which informed the market 8 not only that the Company would not meet its forecasted results for the fourth 9 quarter of 2006, but also that several of the business areas Defendants had touted 10 11 as its strongest virtues were, in actuality, profoundly weakened and impaired. 12 5. Specifically, in the January 25, 2007 Press Release, Defendants 13 14 revealed the Company's quarterly earnings per share would be $0.97, rather than 15 the previously forecasted earnings per share of $1.35. Non-defendant John D. 16 17 Olinski, as well as Abernathy and Perry, respectively, stated in the January 25, 18 2007 Press Release that the imprecision associated with IndyMac's (previously 19 touted) hedging had caused earnings volatility and that some of the previous 20 21 return on equity ("ROE") trumpeted by the Company had been "outsized and 22 unsustainable"; that a large percentage of the Company 's net interest margin had 23 24 decreased and that "[i]n retrospect, we should have more properly planned for 25 this happening " and that efforts had to be, and were being, made to "tighten up 26 our forecasting processes." 27 28 CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -4 1 6. Perry further discussed IndyMac' s forecasting problems during an 2 earnings conference call IndyMac held on the same day, January 25, 2007 (the 3 4 "January 25, 2007 Earnings Conference Call") explaining the Company missed 5 its forecasted results "so badly" that "I grade us a D or an F." Perry also admitted 6 7 "[w]e should be doing a much more detailed bottom's up forecasting in all our 8 business units... and I take responsibility for that." 9 7. Perry also discussed the fact that IndyMac's supposedly superior to 11 internal controls and forecasting models were insufficient to cope with the 12 changing credit market. For example, Perry admitted that despite the Company's 13 14 best efforts, "[o]ur provision for loan losses is increasing... Credit quality 15 generally is deteriorating so I would say that's something we have to do a better 16 17 job forecasting, and clearly we want to be a little more conservative as it relates 18 to that ... This is something we should have done a better job forecasting on. This 19 is something that we probably could have seen better if we had more precise 20 21 models ..." 22 8. Further evidence of IndyMac 's internal control problems is found in 23 24 its financial statements. By the end of the year 2006, Indymac's total allowance 25 for loan losses2 was reported as $62.4 million. In the fourth quarter of 2006, 26 27 28 2 IndyMac's "allowance for loan losses" is part of its overall credit reserves, and refers to amounts set aside by IndyMac to cover losses in any of the loan CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -5 Defendants recorded a provision for loan losses of almost $8.9 million compared to a cumulative loan loss provision for the previous nine months of only approximately $11 million. [2006 Third Quarter Form 10-Q at 51; 2006 Form 10-K at F-21 ]. IndyMac also reported "charge-offs, net of recoveries" for the first nine months of 2006 of only $5.2 million, whereas its "charge-offs, net of recoveries" for the fourth quarter of 2006 were $7.6 million in the fourth quarter of 2006, approximately 20% more than the amount charged off for the nine 10 11 months ended September 30, 2006. [2006 Third Quarter Form 10-Q at 51; 2006 12 Form 10-K at F-21]. Further, while IndyMac's secondary market reserves3 13 14 totaled $37 million for the year 2006, the Company set its secondary market 15 16 17 portfolios it retains for investment purposes. According to IndyMac, the actual amount of this allowance is determined by management based on their 18 "judgments and assumptions." See 2006 Form 10-K at p. 61. 19 20 3 IndyMac packages multiple loans and sells them on the open market. The 21 Company makes representations and warranties as to these loans, according to 22 Perry, "just like a manufacturer of an automobile would make warranty reps on a 23 car" See April 25, 2006 Conference Call at 11. The "secondary market reserves" are intended to cover losses that arise in connection with loans that IndyMac may 24 be required to repurchase because of representation and warranty claims and early 25 payment defaults. Quarterly increases to the secondary market reserves are offset against gains on the sale of loans. Lead Plaintiffs allege the increases to the 26 secondary market reserves made by Defendants were inadequate throughout the 27 Class Period, resulting in an overstatement of the Company's earnings. 28 CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -6 1 reserves for the first quarter of 2007 at $32 million; a clear indication Defendants 2 knew a significant portion of the loans they had sold on the secondary market 3 4 during the Class Period were troubled when made and would need to be 5 repurchased.
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