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

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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

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

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

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

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.

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.

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. The foregoing increases in loan losses and charge-offs are clearly 6

7 indicative of the lack of internal controls at the Company.

9 9. IndyMac made several more incriminating statements in the weeks

10 that followed the January 25, 2007 disclosures. For example, on March 1, 2007, 11 IndyMac issued a press release (the "March 1, 2007 Press Release") in which 12

13 Perry revisited the problems now publicly plaguing IndyMac. Perry stated that as

14 a result of the Company 's recent experiences , IndyMac would begin managing its 15

16 credit risks by making improvements in its underwriting policies ("being smart

17 and prudent in adjusting our mortgage underwriting guidelines") and its hedging 18 activities (improving "decisions as to what assets go into our investment portfolio 19

20 and/or distributing our risk in the secondary market").

21 10. Similarly, on May 1, 2007, an IndyMac spokesperson admitted in an 22

23 interview with the Orange County Register that the Company, "given strong

24 competition in a declining overall mortgage market... in order to compete and 25

26 grow, loosened its lending standards along with everyone else, though in a

27 more responsible way..." Lenders and Their Creating Accounting; Part 1, 28 IndyMac Answers Questions About Loan Losses, The Orange County Register, CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -7 May 12, 2007 (emphasis added). Not surprisingly , and as detailed herein,

2 1ndyMac's "loosened" "lending standards" set the stage for a financial disaster 3

4 for the Company and its shareholders.

5 11. As a result of Defendants' false and misleading statements, 6

7 IndyMac's stock traded at inflated levels during the Class Period. On the

8 I revelation of their falsity, not surprisingly, the price of IndyMac's stock tumbled 9 to $37.71 on January 25, 2007, down from $40.70 on January 24, 2007 and a far 10

I cry from the Class Period high of $50.11 on May 8, 2006.

2 12. Not everyone, however, was harmed as a result of Defendants' false 13

14 I and misleading statements . Abernathy used the inflation in IndyMac's stock

15 during the Class Period for his own profit, illegally selling $1,735,566 worth of 16

17 IndyMac stock.

18 JURISDICTION AND VENUE

:9 13. The claims asserted herein arise under and pursuant to Sections 20

21 10(b) and 20(a) of the Exchange Act (15 U.S.C. §§ 78(j)(b) and 78(t)), and Rule

22 I Ob-5 promulgated there-under (17 C.F.R. § 240.1 Ob-5). 23

24 14. This Court has jurisdiction over the subject matter of this action

25 pursuant to § 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 26

27 1331(b).

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -8 1 15. Venue is proper in this Judicial District pursuant to § 27 of the 2 Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1391(b). Many of the acts and 3

4 transactions alleged herein, including the preparation and dissemination of

5 materially false and misleading information, occurred in substantial part in this 6 7 Judicial District. Additionally, the Company maintains a principal executive 8 office in this Judicial District. 9 16. In connection with the acts, conduct and other wrongs alleged in this 10

1i Complaint, Defendants, directly or indirectly, used the means and

12 instrumentalities of interstate commerce, including but not limited to, the United 13

14 States mails, interstate telephone communications and the facilities of the

15 national securities exchange. 16

17 PARTIES

18 Plaintiffs

19 17. Lead Plaintiffs, as set forth in their certifications previously filed 20

21 I with the Court and incorporated by reference herein, purchased IndyMac stock at

22 artificially inflated prices during the Class Period and have suffered damages as a 23

24 result of the wrongful acts of Defendants as alleged herein.

25 Defendants 26 18. IndyMac operates as a hybrid thrift/mortgage banker. IndyMac's 27

28 thrift banking segment invests in loans originated by various product lines,

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OFTIIE SECURITIES EXCHANGE ACT OF 1934 -9 1 including single-family residential mortgage loans, home construction financing, 2 I builder construction financing facilities and mortgage backed securities. The 3

4 thrift segment consists of the following divisions: mortgage backed securities,

5 prime single family residential mortgage loans, home equity, consumer 6 7 construction and lot loans, builder construction, warehouse lending and

8 discontinued products. The IndyMac mortgage banking segment originates loans 9 through multiple channels, including mortgage brokers and bankers, financial 10

11 institutions, realtors and homebuilders. This segment also provides commercial

12 loans to homebuilders for the construction of new single-family residences and 13

14 generates reverse mortgage products for seniors. The mortgage banking segment

15 consists of the following divisions: mortgage professionals, consumer direct, 16

17 financial freedom, retained assets , and servicing. Through the thrift and

i8 mortgage banking segments , IndyMac offers the following products: investment

19 portfolios, internet based underwriting and risk based pricing system, retail 20

21 banking products, commercial lending, servicing of loans, remitting loan

22 payments and residential construction loan programs. 23

24 19. IndyMac is the seventh largest savings and loan and the second

25 largest independent mortgage lender in the nation. IndyMac has over 8,000 26 employees, total assets of over $29 billion and a market capitalization of $2.3 27

28 billion, and is a major player in this industry.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -10 1 20. IndyMac maintains its principal executive offices at 888 East Walnut 2 Street, Pasadena, California, 91101. 3

4 21. Perry is Chairman of IndyMac's Board of Directors and Chief

5 Executive Officer of IndyMac and IndyMac Bank, F.S.B. Perry is a Master 6 7 Certified Mortgage Banker, as designated by the Mortgage Bankers Association,

8 I and is a Certified Public Accountant. Prior to working in the mortgage industry, 9 Perry spent four years as an auditor with KPMG Peat Marwick. 10

11 22. Perry reviewed, approved and signed IndyMac's false and

12 I misleading SEC filings, including the 2005 Form l0-K and all 2006 Form 10-Qs, 13

14 and issued numerous other false and misleading public statements during the

15 Class Period. 16 17 23. Keys is Executive Vice President and Chief Financial Officer of

18 IndyMac and IndyMac Bank, F.S.B. Keys is responsible for IndyMac's financial

19 and managerial accounting, financial reporting, financial planning, investor 20

21 relations and tax. Keys is a certified public accountant, and was a partner with

22 Ernst & Young LLP prior to joining IndyMac. 23

24 24. Keys reviewed, approved and signed IndyMac's false and

25 misleading SEC filings, including the 2005 Form 10-K and all 2006 Form 10-Qs, 26 and issued numerous other false and misleading public statements during the 27

28 Class Period.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -11 1 25. Abernathy is Executive Vice President, Specialty Mortgage Lending 2 of IndyMac Bank, F.S.B. and oversees the Company's consumer construction, 3

4 subdivision construction, conforming, and Home Equity Line of Credit products.

5 According to IndyMac's website, Abernathy was previously "responsible for the 6 7 whole loan and mortgage-backed securities investment portfolio, the mortgage 8 conduit and corporate finance functions, and prior to that hedging, trading, 9 product development, risk-based pricing and secondary marketing functions of 10

11 IndyMac Bank." Abernathy holds a B.S. in business administration , and prior to

12 joining IndyMac, worked for Commerce Security Bank, managing its accounting 13

14 and investment functions, and served as Vice President and Controller of Sunrise

15 Bancorp of California. Abernathy made false and misleading statements during 16

17 the Class Period.

18 26. The Individual Defendants were privy to adverse non-public

19 information concerning IndyMac's business, finances, products, markets and 20

21 present and future business prospects via access to internal corporate documents,

22 conversations and connections with other corporate officers and employees, 23

24 attendance at management and Board of Directors meetings and committees

25 thereof, and via reports and other information provided to them in connection 26 therewith. Because of their possession of such information, the Individual 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF TILE SECURITIES EXCHANGE ACT OF 1934 -12 1 Defendants knew or recklessly disregarded that the adverse facts specified herein

2 had not been disclosed to, and were being concealed from, the investing public. 3

4 27. By virtue of their high-level positions with the Company, the

5 Individual Defendants directly participated in the management of the Company, 6 7 were directly involved in the day-to-day operations of the Company at the highest

8 levels and were privy to confidential proprietary information concerning the 9 Company and its business, operations, growth, financial statements, and financial to

11 condition, as alleged herein. The Individual Defendants were involved in

12 drafting, producing, reviewing and/or disseminating the false and misleading 13

14 statements and information alleged herein, were aware, or recklessly disregarded,

15 that the false and misleading statements were being issued regarding the 6 statements in violation of the federal 17 Company, and approved or ratified these ,

18 securities laws.

19 28. As officers and/or directors as well as controlling persons of a 20

21 publicly-held company whose common stock was, and is, registered with the

22 SEC pursuant to the Exchange Act, and was traded on the New York Stock 23

24 Exchange ("NYSE") and governed by the provisions of the federal securities

25 laws, the Individual Defendants had a duty to disseminate promptly, accurate and 26 truthful information with respect to the Company's financial condition and 27

28 performance, growth, operations, financial statements, business, markets,

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -13 1 I management, earnings and present and future business prospects, and to correct 2 I any previously-issued statements that had become materially false and/or 3

4 I misleading, so that the market price of the Company's publicly-traded common

5 I stock would be based upon truthful and accurate information. The Individual 6 7 Defendants' misrepresentations and omissions during the Class Period violated

8 these specific requirements and obligations. 9 29. The Individual Defendants, because of their positions of control and io

11 ^ authority were able to and did control the content of the various SEC filings,

12 press releases and other public statements pertaining to the Company during the 13

14 Class Period. The Individual Defendants were provided with copies of the

15 documents alleged herein to be misleading prior to or shortly after their issuance 16 17 and/or had the ability and/or opportunity to prevent their issuance or cause them

18 to be corrected. Accordingly, the Individual Defendants are responsible for the

19 accuracy of the public reports and releases detailed herein and are therefore 20

21 primarily liable for the representations contained therein.

22 30. Each of the Defendants is liable as a participant in a fraudulent 23

24 scheme and course of business that operated as a fraud or deceit on purchasers of

25 IndyMac common stock by disseminating materially false and misleading 26 statements and/or concealing material adverse facts. The scheme: (i) deceived 27

28 the investing public regarding IndyMac's business, operations, management and

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -14 1 the intrinsic value of IndyMac common stock; (ii) caused Plaintiffs and other

2 members of the Class to purchase IndyMac common stock at artificially inflated 3

4 prices; and (iii) when disclosed, caused the price of IndyMac common stock to

5 plummet, damaging Plaintiffs and the Class. 6 7 DEFENDANTS' FRAUDULENT CONDUCT

8 31. From 2001 until 2005, the United States experienced a bubble in the 9 housing market resulting in inflated home valuations and a related refinancing 10

11 boom. This housing boom ended in late summer, 2005 and a market correction

12 followed in 2006. Indeed, by August, 2006, the median price of new homes had 13

14 dropped by almost 3%, existing home inventories were 39% higher than one year

15 before and sales were down by 10% from the prior year. See The No Money 16 17 Down Disaster, Barron's, August 21, 2006. Clearly, the industry on which

18 IndyMac depended for its core business - mortgage lending - was in dire straits.

19 32. Notwithstanding the bad news hitting the industry, Defendants 20

21 portrayed IndyMac as a stable and growing company that would not only weather

22 the bad times facing the mortgage industry, but would emerge from troubling 23

24 times even stronger. Indeed, IndyMac went to great lengths to distinguish itself

25 from other mortgage players, trumpeting its purported ability to function in a 26 negative market. For example, according to Perry "IndyMac delivered 27

28 outstanding results in 2005... despite less than favorable conditions for mortgage

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -I5 1 lenders..." December 31, 2005 Press Release. Indeed, even given the negative 2 news hammering the rest of the mortgage industry, Keys boldly projected 3

4 increased earnings per share (at a time when other like companies were wisely

5 cutting earnings estimates) for IndyMac during 2006. Id. (projecting EPS for 6

7 2006 as high as $5.20, well in excess of the $4.54 EPS in 2005).

8 33. By the inception of the Class Period, with the mortgage market 9 collapsing even faster every day, and a growing storm battering IndyMac, Perry 10

11 continued to sing of bright skies. For example, in a January 26, 2006 Conference

12 Call, Perry stated: 13

14 We're excited about entering 2006. Frankly, I like these more challenging times, because it weeds out 15 the players that we have in the marketplace. I 16 think it also differentiates those companies that

17 have strong pricing policies , strong interest rate risk management and strong credit risk 18 management policies. And I think that will

19 separate IndyMac from a lot of the other competitors out in the marketplace. 20

21 So we're excited about entering 2006. We think we have a strong team and we'll do well. And certainly, 22 obviously, the market in 2006 is a little bit unknown, 23 but I think we have a lot of confidence in our ability to

24 execute in the marketplace that could come out there in 2006. (emphasis added) 25

26 34. Unfortunately, and as Defendants knew both before and throughout

27 the Class Period, Perry' s statement was patently false. IndyMac entered 2006 as

28 a deeply troubled company that was plagued by profoundly flawed underwriting CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF TILE SECURITIES EXCHANGE ACT OF 1934 If, 1 and hedging operations, and crippled by deficient and inadequate internal 2 controls. 3

4 35. Rather than address the problems facing the Company, Defendants

5 chose, instead, to hide them, so that the Individual Defendants could reap the 6 7 rewards attendant with their positions at IndyMac. Indeed, during the Class

8 Period, Abernathy sold $1,735,566 worth of his personally held shares of the 9 Company's stock. Had Defendants disclosed and fixed the problems facing 10

11 IndyMac Abernathy would have been, doubtless, unable to sell his stock at such

12 inflated prices. 13

14 36. The numerous problems facing the Company, and known to

15 Defendants, can be divided into several key areas, discussed in greater detail, 16

17 below. Specifically, during the Class Period: (i) the Company was effectively

18 unable to underwrite and value loans issued and sold by the Company, resulting

19 in the issuance of millions of dollars worth of loans for which it would never be 20

21 repaid; (ii) the Company lacked, contrary to its public representations, the ability

22 to effectively hedge lending risks, and to compensate for changing market 23

24 conditions and interest rate fluctuations; and (iii) had inadequate and ineffective

25 internal controls. As a result of the foregoing problems, the Company's Class 26 Period statements regarding hedging and internal controls were false when made, 27

28 and the Company's projections lacked any reasonable basis.

CLASS ACTION AMENDED COMPLAINT FOR N1OLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -17 1 IndyMac's Deficient Underwriting

2 37. Underwriting, in the context of mortgage lending, consists of a 3

4 detailed analysis of a borrower's creditworthiness. Essentially, when

5 underwriting a loan, an issuer analyzes credit information furnished by the 6 7 potential borrower (such as employment and salary information) in conjunction 8 with information provided from outside sources (such as agency credit reports 9 and scores). IndyMac uses a program called "e-MITS" to assist in this process, 10

11 which computes interest rates based on information such as the above (as

12 entered). The ability to accurately underwrite is absolutely essential to the 13

14 success of any business extending loans, including mortgage companies such as

15 IndyMac because, without accurate underwriting, a company cannot (i) evaluate 16 loan 17 how likely a loan is to be repaid; (ii) attach a particular interest rate to a

18 based on creditworthiness; or (iii) accurately price the loan for sale in the

19 secondary market. Unfortunately for IndyMac and its investors, the underwriting 20

21 operations and processes at IndyMac were fatally flawed. These flaws are

22 discussed, in great detail below, through the words of the Company's former 23

24 employees, each of whom was directly involved with the Company's

25 underwriting, and many of whom were among the Company's most senior 26 executives and managers. 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -18 1 38. Confidential Witness Number One ("CW I ") is a former Vice 2 President and Director of Financial Institutions, Correspondent Lending, in 3

4 IndyMac's Mortgage Banking Segment. CW 1 was employed by IndyMac from

5 July, 2003 until January, 2006, and was directly responsible for (i) designing and 6 7 implementing sales and marketing for IndyMac's business loan division; and (ii) 8 overseeing loan production and acquisition for the Company's Correspondent 9 Lending Department. While CW 1 left IndyMac at or about the beginning of the 10

11 Class Period, his statements are particularly germane, in that they detail the many

12 problems that were, by the beginning of the Class Period, already impairing the 13

14 Company's ability to effectively underwrite its loans.

15 39. According to CW 1, by the beginning of the Class Period, due to its :6 industry, IndyMac had been 17 desire to keep up with the rest of the players in the i8 forced to become extremely aggressive with its underwriting guidelines.

9 Specifically, to keep pace with competitors in terms of loan origination volume, 20

21 by the time CW 1 left IndyMac in January 2006, the Company had greatly

22 loosened its underwriting guidelines4 in order to drive volume and bring in more 23

24 loan sales.

27 4 The Company's underwriting guidelines are the framework and criteria by which the Company evaluates whether to issue a particular loan and, if so, on 28 what terms.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -19 40. Before discussing exactly how the Company loosened its

2 I underwriting guidelines to drive volume, and the implications thereof, it is first 3

4 necessary to understand the different types of loans originated by IndyMac.

5 41. "Prime" loans are conventional loans offered to borrowers with high 6 7 credit scores. The interest on Prime loans is lower than other types of loans, 8 reflecting the lower chance of borrower default. 9 42. "Sub-prime" loans are typically made available to borrowers with 10

11 weakened credit histories that include payment delinquencies, and possibly more

2 severe problems such as charge-offs, judgments , and bankruptcies . They may 13

=4 also display reduced repayment capacity as measured by credit scores, debt-to-

15 income ratios, or other criteria that may encompass borrowers with incomplete 16 or have 17 credit histories. Subprime borrowers generally have limited income

18 FICO credit scores below 620. Subprime mortgage loans have a much higher

-9 rate of default than Prime mortgage loans and are priced based on the risk 20

21 assumed by the lender.

22 43. Alternative-A, or "Alt-A" loans are mortgage loans that have prime 23

24 credit characteristics, but do not meet the Government Sponsored Enterprises

25 (Fannie Mae/Freddie Mac) underwriting guidelines. These loans are considered 26 an intermediate type of loan between Prime and Subprime, and typically carry an 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 20 1 interest rate about a quarter percentage point higher than a comparable Prime

2 loan.

4 44. Alt-A loans are also aptly known as "Reduced Documentation

5 Loans" or "Liar's Loans" because they require less documentation than Prime 6 7 loans to obtain. At one time, Alt-A loans were primarily taken by wealthy buyers

8 I with large down payments and excellent credit. However, in recent years most 9 Alt-A borrowers ' credit scores were closer to those of Subprime borrowers. In 10

11 fact, Moody's Investors Service recently announced it will begin modeling Alt-A

12 loans as Subprime loans absent strong compensating factors after finding 13

14 I "[a]ctual performance of weaker Alt-A loans has in many cases been comparable

15 to stronger subprime performance, signaling that underwriting standards were 16 _7 likely closer to subprime guidelines." Moody's Says Some `Alt A 'Mortgages Are

18 Like Subprime, Bloomberg, July 31, 2007.

19 45. IndyMac did not focus on increasing its sales of good "Prime" loans. 20

21 Instead, by late 2005, the Company had decided to drive loan origination volume

22 by changing underwriting guidelines to be more lenient and greatly increasing its 23

24 focus on the less desirable "Alt-A" loans, according to CW 1.

25 46. This drastic change, however, was not disclosed to the public. Nor 26 did Defendants disclose that IndyMac's increasing market share during the Class 27

28 Period was due to increasing its issuance and holdings of Alt-A mortgage loans

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -21 1 or that it was not accounting or adequately reserving for the escalating credit and 2 market risks inherent in these non-conventional loans. 3

4 47. Numerous witnesses confirm the change in the Company's focus,

5 explaining how the Company loosened its underwriting quality guidelines, and 6 7 expounding on the impact thereof. 8 48. Confidential Witness Two ("CW 2") is a former IndyMac Senior 9 Auditor, Post Purchase Quality Control, Central Mortgage Operations, who to

11 worked for the Company from December 1, 2003, through July 19, 2007. CW 2

12 was responsible for reviewing loan delinquencies for fraud or misrepresentations 13

14 in the documents, and determining whether the loan's underwriting comported

15 with IndyMac's guidelines, policies and procedures. Prior to being promoted to 16

17 Senior Auditor, CW 2 was a Senior Underwriter with IndyMac, and is intimately

18 familiar with all aspects of the Company's loan underwriting.

19 49. According to CW 2, throughout the Class Period, he saw an 20

21 increasing number of loans that appeared to have been issued only through

22 fraudulent or misrepresented documentation. He also saw a substantial increase 23

24 in the number of loan delinquencies. CW 2 stated this increase represented an

25 increase in the number of defaults attributable to misrepresentations and fraud in 26 the loan applications, not in cases of "straight default." (which are typically 27

28 caused by a change in circumstance, such as divorce or change in employment

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 22 1 status). CW 2 stated that the increase in loans in default (attributed to 2 misrepresentations) was due to more relaxed underwriting guidelines, and 3

4 approvals of borderline loans on the front end. That is, loans were being

5 approved to individuals with insufficient or false documentation for the loans that 6 7 they were seeking because the underwriting guidelines had been relaxed. s 50. This is confirmed by Confidential Witness Three ("CW 3"), who 9 was an Investigator, Fraud Investigation Department, Post Purchase Quality 10

Control, Central Mortgage Operations, at IndyMac from December 2004 until

12 July 17, 2007. In this position, CW 3 investigated loans suspected of being 13

14 delinquent due to fraud and reported his findings to management.

15 51. According to CW 3, during the Class Period, the quality of the loans 16

17 originated became a running joke within the Company. In particular, certain

18 loans with deficient documentation or that were issued to buyers unable to pay 19 them back became known as "Disneyland Loans." These loans were called 20

21 Disneyland Loans because of a loan that was issued to a Disneyland cashier who

22 claimed in his application that he/she earned $90,000 per year - a proposition 23

24 that, on its face, belies logic and even common sense, given prevailing wage rates

25 for retail cashier operators. As an example of a particularly egregious 26 "Disneyland Loan," CW 3 related the story of $500,000 27 a loan that was issued for

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -23 I "swamp lands" in Florida, to a 26 year old first time home buyer with a reported 2 income of $26,000 per year and $15 .00 in a bank account. 3

4 52. As a result of the loosened underwriting guidelines, the Company's

5 default rates skyrocketed during the Class Period. Confidential Witness Four 6 7 ("CW 4"), was a Senior Loan Processor, Investigation Unit, Post Purchase

8 Quality Control, Central Mortgage Operations at IndyMac from August 10, 2003 9 until October, 2006, and responsible for researching loan transactions. 10

J.J. 53. According to CW 4, the number of loans being examined by the

12 Company increased by 1500% from 2003 to mid-2006. Specifically, according 13

14 to CW 4, his/her department was responsible for reviewing 10% of the loans

15 originated by IndyMac, each month . In 2003, this translated to approximately 60 16

17 loans per month. By October, 2006 , CW 4's department was reviewing

18 approximately 900 loans per month.

19 54. The drastic increase in default loans was at its worst during the Class 20 21 Period. CW 4 stated the number of delinquent loans at IndyMac tripled by

22 October, 2006. According to CW 4, this increase was the result of 23

24 misrepresentations and fraud that were occurring at the "front end" of the loan

25 originations. Thus, had the Company's underwriting guidelines been more strict, 26 it is likely that this drastic increase would not have occurred. 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 24 1 55. The above problems were exacerbated by IndyMac management. In

2 particular, the number of unqualified loans increased so drastically as a direct

4 result of management's direction that underwriters begin "pushing through"

5 unqualified loans to maintain origination volume. The Company's policy of 6 7 "pushing through" unqualified loans evidences a Company-wide knowledge of

8 IndyMac's underwriting problems. 9 56. Confidential Witness Five ("CW 5") was an underwriter for 10

11 IndyMac from March, 2005 until June 30, 2007. In this position, CW 5 was

12 responsible for writing and reviewing loan applications. 13

14 57. According to CW 5, loan originations increased significantly during

15 his tenure at the Company . CW 5 directly attributed this increase to relaxed 16

77 underwriting guidelines and the closing of "questionable deals."

18 58. CW 5 stated that when he first started at IndyMac , there was a very 19 strict environment regarding loan originations ; however, toward the end of his 20

21 employment, this had evolved into "organized chaos" that was little more than a

22 "free for all" where "anything goes" to get a loan closed. 23

24 59. These changes did not occur on their own, but rather, were expressly

25 directed by IndyMac management to drive loan origination volume. CW 5 stated 26 ^ underwriters were encouraged by management to "push through loans" that 27

28 normally would not be closed. During the originating process, all loans that were

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 25 1 not closed and processed because of qualification issues had to be reported to 2 management. Management was consistently giving the "green light" on loans 3

4 that CW 5 would not have closed . For example, if a loan was submitted based on

5 income, and income could not be verified, managers would look to verify bank 6 7 ^ account balances. Even if the source of funding for the balance in the bank

8 account could not be verified, managers would try to use unsubstantiated bank 9 account balances as verification of income. CW 5 also noted that appraisal 10 i1 values were adjusted in order to "make the loan work. ,5

12 60. CW 5 stated that, in several instances, management overturned his 13

14 decision to not approve a loan, which CW 5 documented in his "working notepad

15 field" in e-MITS (IndyMac's loan software). 16 7 61. According to CW 5, as a result of lax underwriting guidelines and

-18 bad loan push-throughs, loan delinquencies had increased significantly at

=9 IndyMac by mid-2006. 20

24 5 That is, an appraisal value would be moved up to justify issuing a loan of a particular amount. Essentially, the greater the appraisal value, the greater value 25 the property (which secures the loan) appears to have. This means that if the loan 26 defaults, the Company could sell the property for more money to recover its loan.

27 The problem arises, however, when a loan defaults, and the Company discovers that the "adjusted" value of the property is inflated, and it is not able to recover 28 the full amount of the loan.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 26 1 62. The increases in bad loans and push throughs is not surprising, as the 2 I Company directly rewarded underwriters and managers with bonuses for 3

4 I reaching loan origination targets. That is, underwriters were issued bonuses one

5 I month after loan targets were reached without regard to whether the loans 6 7 I ultimately ended in default. This Company policy, essentially, incentivized the a issuance of loans without regard to quality or the creditworthiness and 9 encouraged "making deals work" that should not have worked, according to CW 10 I

11 5.

12 63. In addition to the above direct evidence of the origination of bad 13

14 loans and loose underwriting guidelines, IndyMac (as discussed below) was i5 forced, under warranty agreements, to repurchase substantially increased numbers 16 sold on the secondary market. 17 of loans (now in default) that it had previously

18 This further evidences the Defendants' knowledge of the problems facing

19 IndyMac. 20

21 64. By way of background , according to CW 2, once a loan was

22 originated, it was immediately packaged with other loans and sold on the 23

24 secondary market. According to Perry, IndyMac makes representations and

25 warranties on these loans, "just like a manufacturer of an automobile would make 26 warranty reps on a car" See April 25, 2006 Conference Call at 11. When a loan 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -27 1 that it has sold is deficient, IndyMac repurchases it. These repurchases are called 2 "kickbacks." 3

4 65. According to CW 5, during his employment, the number of

5 "kickbacks" from the secondary market increased drastically. In an effort to 6

7 "cushion the blow" of these kickbacks, IndyMac initiated a "special project" on

8 the weekends in 2006. According to CW 5, underwriters would receive a list of 9 loans that IndyMac had to repurchase after the loan 10 had been previously sold on

11 the secondary market. Underwriters would then have to rework the loan and

12 "make it work" so that it could be bundled and sold again in the secondary 13

14 market. The underwriters involved in the "special project" aggressively did what

15 they could to make the loans "work," according to CW 5. For example, in 16

17 instances where the loan had defaulted and been kicked back because of lack of

18 income verification, underwriters would go to a website provided by IndyMac,

19 such as www.salary.com, and try to obtain an average national salary for the 20

21 borrower based on the average salary reported for those positions.

22 66. Further, underwriters were receiving loans that had originally been 23

24 closed by other underwriters at the Company; therefore, the underwriter trying to

25 fix particular loans was not familiar with their details. Additionally, when 26 underwriters received loan data, they did not receive the entire loan application; 27

28 only the portions that were deficient. Therefore, there was no documentation

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 28 1 pertaining to the other data provided by the borrower - eliminating the ability to

2 cross-check borrower reported information. 3 I

4 67. CW 3 confirms the Company's "special projects." According to CW

5 3, some of the loans rewritten by the underwriters were resold, and the remaining 6 7 loans were channeled to his/her department, so those employees could also try to

6 "make [them] work." 9 68. These problems were obviously known to Defendants, and the 10

11 implications to the Company were devastating. During 2005, IndyMac was

12 forced to repurchase $106 million worth of kicked-back deficient loans from the 13

14 secondary market. In 2006, the value of kicked-back loans climbed to $167

15 million - an increase of over 50% in less than a year. Most striking, however, is 16 repurchased $224 million worth of 17 that during the first quarter of 2007 lndyMac

18 loans from the secondary market - clear evidence that the loans issued during the

19 Class Period were grossly deficient as a result of the Company's lack of adequate 20

21 underwriting guidelines and controls.

22 IndyMac's Deficient Hedging 23

24 69. Complicating the problems faced by IndyMac is the fact that it

25 failed, almost utterly during the Class Period (and again, unbeknownst to 26 investors), to adequately hedge against the foregoing risks and market downturns. 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECT IONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 29 1 70. Hedging is the use of investments to cancel out or reduce the risk of 2 another investment. Done correctly, hedging can lead to minimized exposure 3 to

4 unwanted risk, while still allowing for profit from an investment activity.

5 According to Perry, one of the reasons IndyMac was able to maintain stable 6 7 interest margins and profits was the Company's successful hedging activities. 8 See January 26, 2006 Conference Call. 9 -,0 71. Defendants, however, failed to disclose a key fact that would prove

11 disastrous to investors: despite its representations to the public, IndyMac was

12 not fully hedged . In particular, IndyMac knowingly had at least $1.5 billion in 13 14 liabilities, bearing an interest rate of 2.95%, due to mature in the fourth quarter of 15 2006, that, contrary to Defendants' repeated representations, were unhedged 16

17 and/or for which hedges were not being accounted for at "fair value." The

18 Company's failure to hedge, according to Perry, resulted in at least $0.05 of the

19 Company' s earnings per share miss. See January 25, 2007 Earnings Conference 20

21 Call Tr. at 4.

22 72. Notwithstanding, Defendants touted IndyMac's hedging activities 23

24 throughout the Class Period. For example, during the Company's January 26,

25 2006 earnings conference call, Perry stated hedging was "one of the reasons we 26 have been able to maintain our Thrift net interest margin at very stable levels and 27

28 manage our Mortgage Banking margins and our profits well in more difficult

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 30 1 environments." He also stated "[a]nd if we were not hedging our Thrift net

2 interest margin properly, you would see a dramatic decline in our net interest 3

4 margin, and you see very little change." Id. And "... we hedged out to where we

5 have a VAR with a 95% confidence factor." Similarly, IndyMac's April 25, 2006 6 7 I entitled "IndyMac Bancorp Announces Quarterly EPS of $1.18, up 20%" (the e "April 25, 2006 Press Release"), stated "[t]his division saw a strong increase in 9 believe be more normal rate of 10 ROE from 17 percent to 29 percent, which we to a

11 return for this business, as we have been able to achieve significant scale in our

12 mortgage servicing operations and improved effectiveness at hedging this 13

=4 asset..."

16 73. These statements, however, were diametrically opposed to the truth 17 2007. that day non- _e about IndyMac' s hedging, which emerged on January 25, On i9 defendant John D. Olinski, Executive Vice President, Co-Head, Capital Markets,

20 stated, in contrast to the Company's earlier statements, that: 21

22 hedging is not a perfect science, and the imprecision associated with hedging can cause a certain level of 23 quarterly earnings volatility. For the fourth quarter the 24 ROE fell to twenty percent [from 30% in the previous

25 quarter and 38% a year before], which is a more realistic level than the outsized and unsustainable ROE 26 levels we achieved in the third quarter and one year 27 ago.

28 January 25, 2007 Press Release (Emphasis added). CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -31 1 74. The same day, Perry explained IndyMac's hedging failures on the 2 Company's Analyst Conference Call and admitted that the Company had 3

4 intentionally allowed hedges on $1.5 billion worth of potential liabilities to expire

5 - leaving the Company naked and wholly unprotected: 6

8 PAUL MILLER: So let me get this straight. You pulled off some

9 hedges because you didn ' t like the accounting of it?

2 -t PERRY: No, they were expiring, they were expiring their period.

12 Paul, I don't want to get in to this more than this right here. We can

3 talk about it off-line.

15 75. Defendants' decision to allow these hedges to expire, according to

16 Defendants themselves, resulted in $0.05 of the Company's earnings per share 17 miss. See January 25, 2007 Earnings Conference Call Tr. at 4. 18

,9 IndyMac's Deficient Internal Controls

20 76. In addition to concealing the problems the Company had created by 21

22 loosening underwriting guidelines and its deficient (or non-existent) hedging,

23 Defendants went to great lengths to conceal grossly inadequate internal controls. 24

25 77. By way of background, "internal controls" are the measures an

26 organization adopts to encourage adherence to company policies and procedures; 27 promote operational efficiency and effectiveness ; safeguard assets; and ensure the 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF TIIE SECURITIES EXCHANGE ACT OF 1934 - 32 1 reliability of accounting data. A company's internal controls encompass both

2 internal administrative controls and internal accounting controls. At their core, 3

4 internal controls are supposed to ensure the accuracy of a company's financial

5 reporting, and to ensure that fraud is prevented, or at least detected in a timely 6 7 fashion.6 One of the most important purposes of internal controls (and, indeed,

8 underlying the implementation of Sarbanes-Oxley) is to protect against the risk 9 that senior management may override important financial controls to manipulate o

11 financial reporting. Here unfortunately for the Class, not only did IndyMac lack

22 adequate and effective internal controls, but Defendants knew, and concealed this _3

14 fact.

15 78. In particular, Defendants knew that IndyMac lacked the requisite 16 _7 internal controls to accurately report financial statements prepared in accordance

18 with Generally Accepted Accounting Principles ("GAAP"). This is abundantly 19 clear from the Company' s own disclosures, as well as the statements of former 20

21 employees.

25 6 The current mandated requirements for internal controls are set forth in 26 the Sarbanes-Oxley Act. 15 USC §7201 et seq. Under Sarbanes-Oxley,

27 companies must not only perform regular fraud risk assessments and assess related controls, but individual officers must also personally certify the 28 effectiveness of those controls. Id. at §7262.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 33 1 79. The disclosures made by IndyMac concerning its inadequate internal 2 controls show the Company's financial results during the Class Period were based 3

4 I upon defective assumptions concerning (i) the quality of IndyMac's underwriting, 5 (ii) credit risks, (iii) hedging activities, (iv) management reporting, and (v) the 6 7 Company's loan loss provisions and secondary market reserves.

8 80. The Company's disclosures are confirmed, again, by several former 9 employees. Confidential Witness Six ("CW 6") is a former Senior Analyst in the 10

11 Servicing and Investment Portfolio who was employed by IndyMac from January,

12 2006 until February, 2007. In this role, CW 6 was primarily responsible for 13

14 compiling data and creating reports for senior management based on investment

15 portfolio statistics, models and data. 16 and "if Keys had a 17 81. According to CW 6, forecasts were given to Keys,

18 number in mind, and the forecasts did not reflect that number, Keys had the

19 authority to change it." 20 21 82. Keys' authority to sua sponte change the Company's forecasts is well

22 in line with the culture at IndyMac, which actively discouraged detecting and/or 23

24 reporting fraud. According to CW 3, he would have to be prepared to "drop

25 gloves and go to war" when he wanted to report findings of fraud due to 26 underwriter and seller negligence. There was constant push back by management 27

28 as to the legitimate fraudulent findings he reported.

CLASS ACTION A,1IENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF TAE SECURITIES EXCHANGE ACT OF 1934 - 34 1 83. Indeed, this pressure went all the way up the management ladder.

2 I For example, CW 3 states even the Company's former Vice President of the 3

4 Fraud Investigation Department, Michelle Leigh, was pressured by upper

5 management not to report fraud. According to CW 3, Leigh's superior, Michelle 6 Minier, in one case, expressly requested that Leigh make changes to a monthly

a report that Leigh felt did not accurately depict the loan pipeline. Despite Leigh's 9 protest, the report was subsequently sanitized. 10

11 84. As was the case with the bonus structure for managers and

12 underwriting, the auditors' bonus structure also dissuaded the detection of fraud. 13

14 Auditors' bonuses were based on the number of loans reviewed, not the number of

15 fraudulent findings found. Thus, according to CW 3, IndyMac rewarded more 16

17 work, but not the detection of fraud. This, of course, encouraged workers to

18 simply review, in a cursory fashion, potentially fraudulent loans.

19 85. Further evidence of IndyMac's internal control problems is found in 20

21 its financial statements. By the end of the year 2006, Indymac's total allowance

22 for loan losses was reported as $62.4 million. In the fourth quarter of 2006, 23

24 Defendants recorded a provision for loan losses of almost $8.9 million compared

25 to a cumulative loan loss provision for the previous nine months of only 26 approximately $11 million . [2006 Third Quarter Form 10-Q at 51; 2006 Form 27

28 10-K at F-21 ]. IndyMac also reported "charge-offs, net of recoveries" for the first

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE .ACT OF 1934 - 35 1 nine months of 2006 of only $5.2 million, whereas its "charge-offs, net of 2 3 recoveries" for the fourth quarter of 2006 were $7.6 million in the fourth quarter

4 of 2006, approximately 20% more than the amount charged off for the nine

5 months ended September 30, 2006. [2006 Third Quarter Form l 0-Q at 51; 2006 6

7 Form 10-K at F-21 ]. Further, while IndyMac's secondary market reserves totaled

8 $37 million for the year 2006, the Company set its secondary market reserves for 9 the first quarter of 2007 at $32 million; a clear indication 10 Defendants knew a

significant portion of the loans they had sold on the secondary market during the

12 Class Period were troubled when made and would need to be repurchased. 13

14 Clearly, IndyMac's lack of adequate internal controls allowed for manipulation

15 and thus unreliable, false financial reporting that did not come to light until the 16

17 end of the Class Period.

18 Defendants ' False And Misleading Statements Issued During The Class 19 Period 20

21 86. On January 26, 2006, IndyMac issued a press release entitled

22 "IndyMac Announces FY 2005 EPS of $4.54, Up 34% and Fourth Quarter EPS of 23

24 $1.09, Up 20%," announcing the Company's results of operations and financial

25 condition for the full year and quarter ended December 31, 2005 (the "January 26, 26 2006 Press Release"). The January 26, 2006 27 Press Release stated in part:

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -36 IndyMac Bancorp, Inc. (NYSE:NDE) ("IndyMac" or the "Company"), the holding company for IndyMac Bank(R) F.S.B. ("IndyMac Bank"), today reported earnings of $300.2 million or $4.54 per share for full year 2005. This represents increases of 42 percent and 34 percent, respectively, compared with pro forma net earnings of $211.3 million or $3.40 per share for the full year of 2004. On a GAAP basis, IndyMac earned $170.5 million or $2.74 per share in 2004 (a reconciliation between GAAP and pro forma results is found at the end of this release).

10 Our Thrift segment and MSR division are structured through 11 our interest rate risk management practices to provide stable 12 returns on equity in a variety of interest rate environments. These two combined utilized 65 percent of our average capital 13 and provided a ROE of 22 percent in the fourth quarter of 2005 14 up from 19 percent in the fourth quarter of 2004. Remarkably, our mortgage production divisions, which are expected to have 15 higher but more volatile returns, produced very stable ROEs of 16 48 percent and 49 percent, in the fourth quarters of 2005 and

17 2004, respectively, in an industry environment where volumes were down 6 percent, profit margins declined substantially and 1g the yield curve reflected nearly 200 basis points of flattening. I

19 am incredibly proud of the performance of our IndyMac team for the results produced in this environment," commented 20 Perry. 21

23 Commenting on the Company's outlook for 2006, Chief

24 Financial Officer Scott Keys noted, "We currently expect EPS to range from $4.50 to $5.20 per share... 25

26 87. The January 26, 2006 Press Release was materially false and 27 misleading in that it failed to disclose that: (i) IndyMac was either not hedging or 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -37 1 I considering in its forecast at least $1.5 billion of liabilities due to mature in the 2 fourth quarter of 2006 (discussed in more detail , herein at 3-4, 69-75 ) and (ii) 3

4 Indymac's provision for loan losses and increases to secondary market reserves

5 did not consider the impact of the lack of internal controls on credit risks, as 6 Defendants admitted (discussed in more detail, herein at 3-4, 8, 68, 85).

8 88. The January 26, 2006 Press Release was further materially false and 9 any reasonable basis for the 10 misleading in that Defendants knowingly lacked

_1 Company's EPS projection for 2006, as the Company's loan underwriting

12 guidelines and internal controls were manipulated by Defendants. This resulted i3

14 in the issuance of millions of dollars of bad loans to unqualified borrowers, for

15 which the Company would never be paid back, or would not be able to sell on 16

17 the secondary market. See herein at 3-4, 8-10, 37-68, 85. Additionally, as a

18 result of Defendants' manipulation of the underwriting guidelines and controls, i9 the Company was forced to purchase back, from the secondary loan market, 20

2-•. many of these "bad" or "uncollectible" loans, at a substantial loss to the

22 Company. See Id. 23

24 89. Also on January 26, 2006, Defendants held the "Q4 2005 IndyMac

25 II Bancorp, Inc. Earnings Conference Call." Perry and Keys spoke at this 26 conference and answered questions from several analysts. 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20 (a) OF THE SECURITIES EXCHANGE ACT OF 1934 -38 i 90. During the January 26, 2006 earnings conference call, Defendants 2 touted the Company's "economic" results for the year ended December 31, 2005 3

4 as well as the Company's purported internal controls over hedging to keep

5 earnings smooth: 6

7 PERRY: But I think clearly one of the reasons we have been able to maintain our Thrift net interest margin at very stable 8 levels and manage our Mortgage Banking margins and our 9 profits well in more difficult environments is our enterprise risk management, both on the credit and the interest rate risk side. 10

12 We also - I think we have some of the best segment reporting out there. We have a channel segment report in our Q - 8-K, 114 actually, for this time, . . . But both by channel and by product, great segment reporting. And it basically leaves no room to hide 15 for our management team in terms of accountability... 16

18 And ifwe were not hedging our Thrift net interest margin

19 properly, you would see a dramatic decline in our net interest margin, and you see very little change. 20

22 PERRY: Well, we did have some hedge outperformance within 23 the quarter ... But we had a good quarter in terms of hedging.

24 That doesn't mean we are taking any bets. It's just, when you're hedging, even with the VAR model that we have implemented, 25 that has a probability - we hedged out to where we have a VAR 26 with a 95% confidence factor. Like, for example, right now, I think we could lose or make, in any one day, on the almost - 27 what is it, 900 million in capitalized servicing that we have? 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -39 1 KEYS: Or 1 billion.

2 PERRY: 1 billion of capitalized servicing; we could lose $1.5 3 million, roughly, in any one day or make $1.5 million in any day. We 4 think that's pretty - we have hedged that risk pretty low. But that means that there is some volatility in terms of the returns within a 5 quarter. [emphasis added] 6 7 91. The foregoing statements made by Perry were materially false and

8 misleading for at least the following reasons: (a) there were material weaknesses

9 in Indymac's risk management which prevented the Company from controlling 1o

11 interest rate and credit risks, as well as forecasting and (b) hedge

12 "outperformance" likely was a result of "taking bets," as Defendants admitted 13

14 certain "repriced liabilities" were not hedged, and the net interest on loans held

1J for sale were not hedged (as discussed in detail, herein at 3-4, 69-75) therefore,

16 the Company could and did lose greater than the purported possible 5% that was 17

18 supposed to be the maximum that the Company could lose as a result of its

19 hedging practices. Id. 20

21 92. Also during the January 26, 2006 earnings conference call,

22 Defendants boasted of their forecasts for 2006 despite a "difficult environment": 23 PERRY: And I think that's clearly the $64 question, is where is 24 the mortgage market going in 2006? Where are interest rates 25 going to 2006? And how is IndyMac going to perform in that

26 environment? ... Now, you would expect, if that was the only thing that changed [i.e., the 2004 and 2005 mortgage market 27 was flat], that IndyMac would do very well in a flat market 28 because we tend to do well when the market is flat and also when the market is declining... And what we've said is that CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -40 1 Indymac's hybrid thrift\mortgage banking model - we are not

2 immune to industry volumes and industry problems, but think our business model and our superior execution will result in 3 us performing better than most. [Tr. at 2-3] [emphasis 4 added]

5 The foregoing statements were materially false and misleading 6 93.

7 when made for the reasons previously discussed at ¶ 97.

8 94. On March 1, 2006, Defendants filed on Form 10-K Indymac's 9

10 Annual Report for the year ended December 31, 2005 (the "2005 10-K"). Perry

11 and Keys signed the 2005 10-K. 12

13 95. The 2005 10-K contained the following materially false and

14 11 misleading statements, among others : "The objective of our hedging strategy is to 15 mitigate the impact of changes in interest rates on the net economic value of the 16

17 balance sheet and quarterly earnings, not to speculate on interest rates." [2005 10-

18 K at p. 50] 19

20 96. The foregoing statement was materially false and misleading in that

21 II it omitted to disclose that the Company was not hedging adequately. For 22 I example, Perry, on the January 25, 2007 Analyst Conference Call, admitted that: 23

24 "In mortgage production, this is - we had a 13% decline from forecast. You can

25 ^ see that spread income, you know, we don't hedge as we talk many times, the 26

27 loans for sale net interest margin... " [emphasis added] (discussed in detail,

28 herein at 3-4, 69-75).

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -41 1 97. The 2005 Form 10-K further stated : "We utilize several

2 methodologies to estimate the adequacy of our ALL [Allowance for Loan Losses] 3

4 and to ensure that the allocation of the ALL to the various portfolios is reasonable

5 given current trends and economic outlook." 6

7 98. The foregoing statement was false and misleading in that it omitted

8 to disclose that Indymac's forecasted loan loss reserves did not consider the 9 impact of the Company's lack of controls over credit risks, as Defendants 10

11 admitted. (discussed in detail, herein at 3-4, 8, 68, 85).

12 99. Attached to the 2005 10-K, as Exhibits 31.1, 31.2, 32.1, and 32.2, 13

14 were the CEO and CFO certifications required by SOX executed by Perry and

1 5 Keys. 16

17 100. Perry and Keys, pursuant to Exhibits 31.1 and 31.2, each separately

18 certified that:

-9 I have reviewed this annual report on Form 10-K of IndyMac 20 Bancorp; 21

22 Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a 23 material fact necessary to make the statements made, in light of

24 the circumstances under which such statements were made, not misleading with respect to the period covered by this annual 25 report; 26 Based on my knowledge, financial 27 the statements, and other financial information included in this annual report, fairly 28 present in all material respects the financial condition, results of

CLASS ACTION :MENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -42 operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to designed under our supervision, to ensure that 10 be material information relating to the registrant, 11 including its consolidated subsidiaries, is made known 12 to us by others within those entities, particularly during the period in which this annual report is being 3 prepared;

14 (b) designed such internal control overfinancial 1J reporting, or caused such internal control over 16 financial reporting to be designed under our

17 supervision, to provide reasonable assurance regarding the reliability offinancial reporting and 18 the preparation offinancial statements for external 19 purposes in accordance with generally accepted accounting principles; 20 (c) evaluated the effectiveness of the registrant's 21 disclosure controls and procedures and presented in this report our conclusions about the effectiveness of 22 the disclosure controls and procedures, as of the end of 23 the period covered by this report based on such

24 evaluation; and (d) disclosed in this report any change in the 25 registrant's internal control over financial reporting 26 that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to 27 materially affect, the registrant's internal control over 28 financial reporting; and

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 43 The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

10 (b) any fraud, whether or not material, that involves 11, management or other employees who have a significant

12 role in the registrant's internal control over financial reporting. [emphasis added] 13

14 101. The foregoing certifications were materially false and misleading as

15 not all assets and liabilities were being hedged, as reported (discussed in detail, 16

17 herein at 3-4, 69-75); and IndyMac had inadequate underwriting controls and

18 guidelines (discussed in detail, herein at 3-4, 9-10, 37-68). 19 102. IndyMac announced its results of operations and financial condition 20

21 for the first quarter of 2006 in the Company's April 25, 2006 Press Release,

22 which stated in part: 23

24 IndyMac Bancorp, Inc. (NYSE:NDE) ("IndyMac(R)" or the "Company"), the holding company for IndyMac Bank, F.S.B. 25 ("IndyMac Bank(R)"), today reported net earnings of $80 26 million, or $1.18 per share, for the first quarter of 2006, compared with net earnings of 27 $63 million, or $0.98 per share, in the first quarter of 2005, representing increases of 26 percent 28 in net earnings and 20 percent in earnings per share...

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -44 1

3 "In light of our strong performance in the first quarter of 2006 4 and the outlook for the remainder of the year, we are raising our for the year to a range between $5.00 and 5 earnings guidance $5.40 per share, up from our prior range of $4.50 to $5.20. 6

8 103. The foregoing statements contained in the April 25, 2006 Press 9

10 Release were materially false and misleading when made for at least the

,j following reasons: (a) net earnings were overstated as a result of the Company's 12

13 understatement of loan loss reserves and inadequate secondary market reserves

14 (which are offset against gains on sales of loans), as Indymac's loan loss reserves 15 and secondary market reserves did not consider the impact of the lack of controls 16

17 over credit risks, as Defendants admitted and (b) there was no good faith or

18 reasonable basis to actually increase expected 2006 EPS to a range of $5.00 to 19

20 $5.40 per share from $4.50 to $5.20 per share, as (i) IndyMac was either not

2 hedging or considering in the forecast the repricing of hedges on at least $1.5 22 billion of liabilities 23 due to mature in the fourth quarter of 2006 and (ii) Indymac's

24 provision for loan losses and increases to secondary market reserves did not

25 consider the impact of the lack of internal controls on credit risks, as Defendants 26

27 admitted.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -45 104. The EPS forecast was further without reasonable basis as the

2 Company' s loan underwriting guidelines and internal controls were manipulated 3

4 by Defendants. This resulted in the issuance of millions of dollars of bad loans to

5 unqualified borrowers, for which the Company would never be paid back or be 6 7 I able to sell on the secondary market. See herein at 3-4, 8-10, 37-68, 85. 8 Additionally, as a result of Defendants' manipulation of the underwriting 9 guidelines and controls, the Company was forced to purchase back, from the

secondary loan market, many of these "bad" or "uncollectible" loans, at a

substantial loss to the Company. Id. 13

14 105. Also on April 25, 2006, the Company filed its Form 10-Q for the

1 5 I quarter ended March 31, 2006, which included the Company's above reported

(the 2006 First 17 financial results . The Form 10-Q was signed by Perry and Keys

8 Quarter Q").

19 106. The statements contained in the 2006 First Quarter Q were false and 20

21 misleading, for at least the same reasons as the April 26, 2006 Press Release as

22 described in paragraphs 103-104. 23

24 107. In addition, the 2006 First Quarter Q also stated: "The Company

25 hedges the interest rate risk inherent in its pipeline of mortgage loans held for sale 26 to protect its margin on sale of loans." Id. at 27. This statement was false and 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -46 misleading when made, as Defendants admitted, they were not hedging as they

"talk." (discussed in detail, herein at paragraphs 3-4, 69-75).

108. The 2006 First Quarter Q also reported a provision for loan losses of

$3.8 million, $1.7 million of loan charge-offs net of recoveries , Id., at 47, and

stated the following in regard to the allowance for loan losses at March 31, 2006:

Our determination of the level of the allowance for loan losses and, correspondingly, the provision for loan losses, is based on management's judgments and assumptions regarding various to matters, including general economic conditions, loan portfolio composition, loan demand, delinquency trends and prior loan

12 loss experience. In assessing the adequacy of the allowance for loan losses in its entirety, management reviews the performance 13 in the portfolios of loans held for investment and the non-core 14 portfolio of discontinued product lines, which consists of manufactured housing and home improvement loans. A 15 component ofthe overall allowancefor loan losses is not 16 specifically allocated to the loan portfolios ("unallocated

17 component "). The unallocated component reflects management 's assessment of various factors that create 18 inherent imprecision in the methods used to determine the 79 specific portfolio allocations. Those factors include, but are not limited to levels of and trends in delinquencies and impaired 20 loans, charge-offs and recoveries, volume and terms of the 21 loans, effects of any changes in risk selection and underwriting

22 standards, other changes in lending policies, procedures, and practices, and national and local economic trends and 23 conditions. As ofMarch 31, 2006, the unallocated component 24 ofthe total allowance for loan losses was $18.7 million, unchangedfrom the unallocated allowance at December 31, 25 2005. 26

27 109. Further, IndyMac recorded an increase of approximately $4.5

28 million to secondary market reserves. See 2006 First Quarter Q.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -47 110. The foregoing statements were materially false and misleading when 2 made as Indymac's provision for loan losses and increases to the secondary 3

4 market reserves did not consider the lack of internal controls over credit risks, as

5 Defendants admitted (discussed in detail, herein at paragraphs 3-4, 8, 68, 85). 6 7 111. Finally, the 2006 First Quarter Q also stated that they "currently

8 expect 2006 EPS to range from $5.00 to $5.40 per share." This statement was 9 10 materially false and misleading for the same reasons stated in connection with the

-11 Company's April 25, 2006 Press Release.

12 112. Attached to the 2006 First Quarter 10-Q, as Exhibits 31.1, 31.2, 13

14 32.1, and 32.2 were the CEO and CFO certifications required by SOX. These

15 certifications, executed by Perry and Keys, are virtually identical to the SOX 16

;, certifications previously discussed in connection with the Company's 2005 10-K,

18 and are materially false and misleading for the same reasons. See paragraph 101.

19 113. Also on April 25, 2006, Defendants held the "Q1 2006 IndyMac 20

21 Bancorp, Inc. Earnings Conference Call." Perry and Keys spoke at this

22 conference and answered questions from several analysts. Specifically, during 23

24 the call, they reiterated the increase in projected EPS for 2006, and continued to

25 trumpet the Company' s hedging activities, stating that: 26 Another key was that our loan servicing portfolio, 27 as interest rates have risen, and as we've improved our hedging activities, 28 our servicing portfolio has performed much better.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -48 1

3 We've improved our hedging strategies, implemented value at 4 risk analysis which has helped us tremendously in hedging this

5 asset.

6 114. The foregoing statements were materially false and misleading in 7 that they Company had no control over hedging and lacked a reasonable basis for 8

9 the EPS forecast. See paragraphs 3-4, 69-85.

10 115. On July 27, 2006, the Company issued a press release entitled 11

12 "IndyMac Bancorp Announces Record Quarterly EPS of $1.49, Up 20%,"

13 announcing the Company's results of operations and financial condition for 14 second quarter 2006 (the "July 27, 2006 Press Release"). The July 27, 2006 Press 15

16 Release stated in part: 17 IndyMac Bancorp, Inc. (NYSE:NDE) ("IndyMac®" or the 18 "Company"), the holding company for IndyMac Bank, F.S.B. 19 ("IndyMac Bank®"), today reported net earnings of $105 million or $1.49 per share for the second quarter of 2006, 20 compared with net earnings of $82 million, or $1.24 per share 21 in the second quarter of 2005, representing increases of 28

22 percent in net earnings and 20 percent in earnings per share....

23 * * *

24 With respect to 2006 earnings guidance, Indymac's Chief Financial Officer Scott Keys added, "In light of our continued 25 strong performance this quarter, we are reiterating our 26 previously issued forecast of earnings of $5.00 to $5.40 per share, although we feel more confident that will 27 we finish the year above the mid-point of this range." 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 49 1 116. The foregoing statements contained in the July 27, 2006 Press 2 Release were materially false and misleading when made for at least the 3

4 following reasons: (a) net earnings were overstated as a result of the Company's

5 understatement of loan loss reserves, as Indymac's provision for loan losses and 6 7 increases to secondary market reserves did not consider the impact of the lack of 8 internal controls on credit risks, as Defendants admitted; and (b) there was no 9 good faith or reasonable basis to actually increase expected 2006 EPS to a range 10

11 of $5.00 to $5.40 per share from $4.50 to $5.20 per share, as (i) IndyMac was

12 either not hedging or considering in the forecast the repricing of hedges on at 13

14 least $1.5 billion of liabilities due to mature in the fourth quarter of 2006 and (ii)

15 Indymac's loan loss reserves and increases to its secondary market reserves did 16

17 not consider the impact of the lack of controls over credit risks, as Defendants

18 admitted.

19 117. The EPS forecast was further without reasonable basis as the 20

21 Company's loan underwriting guidelines and internal controls were manipulated

22 ^ by Defendants. This resulted in the issuance of millions of dollars of bad loans to 23

24 unqualified borrowers, for which the Company would never be paid back or be

25 able to sell on the secondary market. See herein at paragraphs 3-4, 8-10, 37-68, 26 85. Additionally, as a result of Defendants' manipulation 27 of the underwriting

28 guidelines and controls, the Company was forced to purchase back, from the

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 50 1 secondary loan market, many of these "bad" or "uncollectible" loans, at a 2 substantial loss to the Company. Id. 3

4 118. Also on July 27, 2006, the Company filed its Form 10-Q for the

5 quarter ended June 30, 2006, which included the July 27, 2006 Press Release. 6 7 The Form 10-Q was signed by Perry and Keys (the "2006 Second Quarter Q"). 8 The statements contained in the 2006 Second Quarter Q were false and 9 misleading, for at least the same reasons as the July 27, 2006 Press Release as 10

11 described in paragraphs 116-117.

12 119. The 2006 Second Quarter Q also stated: "The Company hedges the 13

14 interest rate risk inherent in its pipeline of mortgage loans held for sale to protect

15 its margin on sale of loans ." Id. at 24. This statement was false and misleading 16

17 11 when made, as Defendants admitted, they were not hedging as they "talk."

18 (discussed in detail, herein at 3-4, 69-75). 19 120. The 2006 Second Quarter Q also reported an approximate $2.2 20

21 million provision for loan losses and $1.6 million of loan charge-offs, net of

22 recoveries. Id., at 44. Defendants stated the following in regard to the allowance 23

24 ^ for loan losses at June 30, 2006:

25 Our determination of the level of the allowance for loan losses 26 and, correspondingly, the provision for loan losses, is based on management's judgments and assumptions regarding 27 various matters, including general economic conditions, loan portfolio 28 composition, loan demand, delinquency trends and prior loan

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -51 loss experience. In assessing the adequacy of the allowance for loan losses in its entirety, management reviews the performance in the portfolios of loans held for investment and the non-core portfolio of discontinued product lines, which consists of manufactured housing and home improvement loans. A component ofthe overall allowancefor loan losses is not specifically allocated to the loan portfolios ("unallocated component'). The unallocated component reflects management 's assessment of various factors that create inherent imprecision in the methods used to determine the specific portfolio allocations. Those factors include, but are not limited to levels of and trends in delinquencies and impaired and recoveries, volume and terms of the 1o loans, charge-offs loans, effects of any changes in risk selection and underwriting standards, other changes in lending policies, procedures, and

1 2 practices, and national and local economic trends and conditions. As ofJune 30, 2006, the unallocated component of 13 the total allowance for loan losses was $19. 3 million, 14 comparable to $18. 7 million of unallocated allowance at December 31, 2005. 15

16 [2006 Second Quarter Q at 45] 17

,g 121. Furthermore, Defendants recorded an addition of $10.2 million to i9

20 IndyMac's secondary market reserve. See 2006 Second Quarter Q.

21 122. The foregoing statements were materially false and misleading 22 when made as Indymac's provisions for loan losses and increases to the 23

24 secondary market reserve did not consider the lack of controls over credit risks,

25 as Defendants admitted (discussed in detail, herein at paragraphs 3-4, 8, 68, 85). 26

27 123. Finally, the 2006 Second Quarter Q reiterated the Company's EPS

28 forecast of $5.00 to $5.40 per share for 2006, which was materially false and

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 52 1 misleading for the same reasons stated in connection with the Company's July 2 27, 2006 Press Release. 3

4 124. Attached to the 2006 Second Quarter 10-Q, as Exhibits 31.1, 31.2, 5 32.1, and 32.2 were the CEO and CFO certifications required by SOX. These 6

7 certifications, executed by Perry and Keys, are virtually identical to the SOX

8 certifications previously discussed in connection with the Company's 2005 10-K, 9 same reasons. See 10 and are materially false and misleading for the paragraph 101. 11 125. Also on July 27, 2006, Defendants held the "Q2 2006 IndyMac 12 Bancorp, Inc. Earnings Conference Call." Perry and Keys spoke at this 13

14 conference and continued to laud the Company's hedging and stated:

16 PERRY: I mean, it really should be volumes and more, and

17 really more and more banking margins should be the concern. That's what -- if you look at our economic model of driving our 18 earnings. More banking revenue margins isn't job one. And that 19 really drives our earnings. You could double, triple, quadruple our credit losses and it has a very minimal impact in terms of 20 our earnings. 21 [Tr. at 13; Emphasis added] 22

23 126. The foregoing statement was materially 24 false and misleading

25 because, as discussed above, at paragraphs 3-4, 69-75, the Company 's hedging

26 was severely impaired or non-existent. 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 53 1 127. On November 2, 2006, the Company issued a press release entitled

2 "IndyMac Bancorp Announces Third Quarter EPS of $1.19, up 3%," announcing 3

4 the Company's results of operations and financial condition for third quarter 2006

5 (the "November 2, 2006 Press Release"). The November 2, 2006 Press Release 6

7 stated in part:

8 PASADENA, Calif.--(BUSINESS WIRE)--Nov. 2, 2006-- 9 IndyMac Bancorp, Inc. (NYSE:NDE) ("IndyMac(R)" or the "Company"), the holding company for IndyMac Bank, F.S.B. 1o ("IndyMac Bank(R)"), today reported net earnings of $86 million, or $1.19 per share, for the third quarter of 2006, i2 compared with net earnings of $78 million, or $1.16 per share, in the third quarter of 2005, representing increases of 11 13 percent in net earnings and three percent in earnings per share . 14

16 i7 With respect to 2006 earnings guidance, Keys added, "We now 18 expect full year 2006 earnings per share in an approximate 19 range of $5.16 to $5.26, reflecting continued strength in our operations and the growth and stable returns in our 20 production thrift and servicing segments. 21

22 128. The foregoing statements contained in the November 2, 2006 Press

23 Release were materially false and misleading when made for at least the 24

25 following reasons: (a) net earnings were overstated as a result of the Company's

26 understatement of the provision for loan losses and the secondary market 27

28 reserves, as Indymac did not consider the impact of the lack of internal controls

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 54 1 over credit risks, as Defendants admitted and (b) there was no good faith or 2 reasonable basis to actually increase expected 2006 EPS to a range of $5.00 to 3

4 $5.40 per share from $4.50 to $5.20 per share, as (i) IndyMac was either not

5 hedging or considering in the forecast the repricing of hedges on at least $1.5 6 7 billion of liabilities due to mature in the fourth quarter of 2006 and (ii) Indymac's 8 loan loss reserves and inadequate secondary market reserves did not consider the 9 impact of the lack of controls over credit risks, as Defendants admitted. 10

11 129. The EPS forecast was further without reasonable basis as the

12 Company's loan underwriting guidelines and internal controls were manipulated 13

14 by Defendants. This resulted in the issuance of millions of dollars of bad loans to

15 unqualified borrowers, for which the Company would never be paid back or be 16

17 able to sell on the secondary market. See herein at paragraphs 3-4, 8-10, 37-68,

18 85. Additionally, as a result of Defendants' manipulation of the underwriting

19 guidelines and internal controls, the Company was forced to purchase back, from 20

21 the secondary loan market, many of these "bad" or "uncollectible" loans, at a

22 substantial loss to the Company. See Id. 23

24 130. Also on November 2, 2006, the Company filed its Form 10-Q for the

25 quarterly period ended September 30, 2006, which included the Company's 26 previously reported financial results (the "2006 Third Quarter Q"). The Form 10- 27

28 Q was signed by Perry and Keys. The statements contained in the 2006 Third

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 55 Quarter Q were false and misleading , for at least the same reasons as the

November 2, 2006 Press Release as described in paragraphs 128-129.

131. The 2006 Third Quarter Q also stated : "The Company hedges the

interest rate risk inherent in its pipeline of mortgage loans held for sale to protect

its margin on sale of loans. " Id. at 29. This statement was false and misleading

when made, as Defendants admitted, they were not hedging as they "talk."

(discussed in detail, herein at paragraphs 3-4, 69-75). 10

11 132. The 2006 Third Quarter Q also reported an approximate $4.9 million

12 increase to loan loss provisions, and approximately $1.8 million of loan charge- 13

14 offs, net of recoveries and a $4.9 million provision for loan losses. Id., at 51.

15 The 2006 Third Quarter Q stated the following in regard to the allowance for loan 16

17 loss reserves at September 30, 2006:

18 Our determination of the level of the allowance for loan losses 19 and, correspondingly, the provision for loan losses, is based on management's judgments and assumptions regarding various 20 matters, including general economic conditions, loan portfolio 21 composition, loan demand, delinquency trends and prior loan

22 loss experience. In assessing the adequacy of the allowance for loan losses in its entirety, management reviews the performance 23 in the portfolios of loans held for investment and the non-core

24 portfolio of discontinued product lines, which consists of manufactured housing and home improvement loans. A 25 component ofthe overall allowance for loan losses is not 26 specifically allocated to the loan portfolios ("unallocated component'). The unallocated 27 component reflects management's assessment of various factors that create 28 inherent imprecision in the methods used to determine the

CLASS ACTION AMENDED COMPLAI NT FOR VIOLATIONS OF SECTIONS 10(b) AND 20 (a) OF THE SECURITIES EXCHANGE ACT OF 1934 -56 1 specific portfolio allocations. Those factors include, but are not

2 limited to levels of and trends in delinquencies and impaired loans, charge-offs and recoveries, volume and terms of the 3 loans, effects of any changes in risk selection and underwriting 4 standards, other changes in lending policies, procedures, and practices, and national and local economic trends and 5 conditions. As ofSeptember 30, 2006, the unallocated 6 component ofthe total allowance for loan losses was 7 $19.4 million, comparable to $18. 7 million of unallocated allowance at December 31, 2005. 8

9 [2006 Third Quarter Q at 52]. 10

11 133. Furthermore, Defendants recorded an addition of approximately $9.3 12 million to the secondary market reserves. See 2006 Third Quarter Q. 13

14 134. The foregoing statements were materially false and misleading when

15 made as Indymac's loan loss reserves and secondary market reserves did not 16

17 consider the impact of the lack of internal controls over its credit risks (discussed

18 in detail , herein at 3-4, 8, 68, 85). .9

20 135. Finally, the 2006 Third Quarter Q reiterated the Company's EPS

21 forecast of between $5.16 and $5.26 per share for 2006, which was materially

22 false and misleading for the same reasons stated in connection with the 23

24 Company's July 27, 2006 Press Release.

25 136. Attached to the 2006 Third Quarter 10-Q, as Exhibits 31.1, 31.2, 26

27 32.1, and 32.2 were the CEO and CFO certifications required by SOX. These

28 certifications, executed by Perry and Keys, are virtually identical to the SOX

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20 (a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 57 certifications previously discussed in connection with the Company's 2005 10-K,

and are materially false and misleading for the same reasons. See paragraph 101. 3 137. Also on November 2, 2006, Defendants held the "Q3 2006 IndyMac

Bancorp, Inc. Earnings Conference Call." Perry and Keys spoke at this

conference and answered questions from several analysts.

Last year in 2005 we provided $10 million in loan loss reserves. This year, even though charge-offs are actually down year- 10 over-year, we provided $16 million in loan loss reserves and we're forecasting in our 2007forecast that more than 11 doubling to $35 million in loan loss reserves. We're also doing

12 the same, you'll see in a second, that our warranty reserve is growing significantly, and also our mark-to-market, and loans 13 held for sale. [Tr. at 6] 14

16 We're also saying give those factors, plus the fact our industry

17 has significant operating leverage, actual earnings and prospects can change rapidly. And so predicting future earnings 18 is challenging. So we're telling people that that's the case. But 19 in the same vein, we also want to tell them things like, hey, we're doubling -- we're forecasting a doubling of our loan loss 20 provisions next year embedded in those earnings numbers. [Tr. 21 at 16]

22 138. The foregoing 23 statements were materially false and misleading when

24 made for the following reasons: Defendants had no control over forecasting loan

25 loss reserves or secondary market reserves because Indymac did not consider the 26

27 impact of the lack of internal controls over credit risks. (discussed in detail,

28 herein at 3-4, 8, 68, 85). Indeed, Defendants increased their loan loss reserve by

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 58 over 80% in the 2006 Fourth Quarter without disclosing this to the market before

reporting earnings.

139. Finally, Perry reiterated the Company's EPS forecast for 2006,

which was materially false and misleading for the same reasons stated in

connection with the Company's November 2, 2006 Press Release.

140. On January 16, 2007, the Company issued a press release entitled

"IndyMac Provides Update on 2006 Results" (the "January 16, 2007 Press =o

Release") The January 16, 2007 Press Release stated in part:

=2 PASADENA, Calif.--(BUSINESS WIRE)--Jan. 16, 2007--The 13 following is a letter to shareholders of IndyMac and other 14 IndyMac stakeholders from Michael W. Perry, Chairman and Chief Executive Officer: 15

16 Dear Shareholders and other IndyMac Stakeholders:

17 Unfortunately, we are starting the year off with some bad news. _8

19 Based on the earnings forecast we provided after the end of last quarter, we anticipated that our EPS for the fourth quarter 20 would be $1.35 (in a range of $1.30 to $1.40). However, last 21 week, as we began to complete our quarterly accounting "roll- up," it became clear that our Q4 earnings would be 22 substantially below our forecast. While our internal quarterly 23 accounting certification process is not yet complete and

24 adjustments could still be made as we finalize our accounting, we now expect to report approximately $0.97 EPS for the 25 quarter when we release earnings as scheduled on January 25th. 26 This shortfall reflects the challenging times being faced by the 27 mortgage and housing industries and the difficult nature of 28 forecasting earnings in our business. I have stated many times

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(s) OF THE SECURITIES EXCHANGE ACT OF 1934 - 59 before that IndyMac is not immune to deteriorating mortgage industry conditions, and it is clear now that during the fourth quarter industry conditions continued to erode. While we have not yet completed our detailed analysis of all of the variances, our assessment as of today is that the main differences between our prior forecast of $1.35 and what looks to be our earnings of $0.97 are the following:

1. An increase in credit costs related to the loan loss provision, secondary market reserve, and marking-to- market delinquent loans held-for-sale and residuals and non-in vestment grade securities;

10 2. A reduction in net interest margin related to loans held- 11 for-sale and the thrift investment portfolio due to yield

12 curve inversion and thefact that our loan production mix shifted more towardfixed rate and intermediate term fixed 13 rate loans; 14 3. A decline of the servicing/interest-only securities 15 portfolio return on equity (ROE) from a high level of 30 16 percent last quarter to a more normalized level, in addition

17 to a forecasted sale of some securities (at a gain) that did not occur; and 18

19 4. As an offset to the above shortfalls, a tax benefit, reflecting the reduction of our annual effective tax rate from 20 39.5 percent to 39.1 percent. The effective rate declined as a 21 result of doing more business in lower tax-rate states than in

22 California.

23 While I and the rest of Indymac's management team are clearly 24 disappointed with our shortfall from expectations, stepping back from this situation ... if we do report EPS of $0.97 for the 25 quarter, this would represent a 14.6 percent ROE ... in a very 26 challenging market for housing and the mortgage business. This ROE would still significantly 27 be better than the average ROE reported for the third quarter for the top ten thrifts, excluding 28 IndyMac, of 10.3 percent, while at the same time many

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a ) OF THE SECURITIES EXCHANGE ACT OF 1934 -60 mortgage companies and mortgage divisions of major financial institutions reported losses.

In addition, if we report $0.97 for the fourth quarter as now anticipated, we would still earn an all-time record $4.82 for 2006, representing a 19.1 percent ROE and a 9 percent increase from 2005 ... in a year where industry volumes were down 17 percent, the third year in a row of down industry volumes. In comparison, our research indicates that a majority of the top ten thrifts will report EPS declines for 2006, while only IndyMac and a few others will grow EPS for the year.

Despite our solid performance in a tough market, I understand 10 that Indymac's reputation has been hurt by this earnings miss, 11 and I take full responsibility for this situation. While our

12 internal forecasting processes have been generally predictive of actual earnings in the past and we have had few earnings 13 surprises prior to this quarter, as we have stated in past press 14 releases, in our industry - which has significant operating leverage - actual earnings and future prospects can change 15 rapidly, making it a challenge to forecast future earnings. 16 Nonetheless, we feel strongly that management has a

1? responsibility to provide earnings forecasts to its shareholders to the best of its ability. Accordingly, we will have an updated ,g 2007 forecast when we formally release earnings on January ,9 25th, and, at that time, we will present an action plan of key steps we will take to improve our prospects and continue to 20 outperform our peers in the current market environment. As 21 one of these steps, I will be recommending to our board of directors that we not increase our quarterly dividend but 22 maintain it at the current level of $0.50 per share for this 23 quarter. We also plan to explore stock repurchases, a step we

24 have successfully used in the past, as a way to enhance shareholder value. 25

26 Thank you again for the trust and confidence you have placed in IndyMac and its team. We will continue to work tirelessly to 27 ensure that your trust and confidence are justified. 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -61 1 Very truly yours, 2 Michael W. Perry 3 Chairman and Chief Executive Officer 4

6 7 141. The foregoing statements, while revealing some portion of the s relevant truth concealed during the Class Period, were still materially false and 9 misleading when made, as the Company failed to disclose: (a) that earnings per 10 11 share would only reach $4.82 for 2006 at least in part due to the manipulation of

12 the Company' s loan underwriting guidelines by Defendants. This resulted in the 13

14 issuance of millions of dollars of bad loans to unqualified borrowers, for which the

15 Company would never be paid back or be able to sell on the secondary market. 16 See herein at 3-4, 8-10, 37-68, 85. Additionally, as a result of Defendants' 17

18 manipulation of the underwriting guidelines and controls, the Company was forced

19 to purchase back, from the secondary loan market, many of these "bad" or 20

21 "uncollectible" loans, at a substantial loss to the Company. See Id.; (b) the

22 Company's inadequate internal controls over hedging of interest rates and loan 1 23

24 reserves, and a planned change in accounting therefore; (c) that a material portion

25 of the earnings miss was due to the fact that a material portion of Indymac's

26 derivatives and/or assets or liabilities were not being accounted for by SFAS No. 27

28 156, as the market was led to believe; (d) $1.5 billion of liabilities were "repriced"

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 62 in the fourth quarter, which was not considered in Defendants' original 2006

2 Fourth Quarter forecast; and (e) the "Enterprise Risk Management Committee" 3

4 or the business units employing management or "economic" accounting and

5 reporting did not reconcile such to GAAP earnings. 6 7 Defendants' Class Period Ending Disclosures

6 142. Approximately one week later, IndyMac released the January 25, 9 2007 Press Release, announcing the Company's results of operations and 10

11 financial condition for fourth quarter 2006. The January 25, 2007 Press Release

12 stated in part: _3

14 PASADENA, Calif.--(BUSINESS WIRE)--Jan. 25, 2007-- IndyMac Bancorp, Inc. (NYSE:NDE) ("lndyMac(R)" or the 15 "Company"), the holding company for 1ndyMac Bank, F.S.B. 16 ("IndyMac Bank(R)"), today reported net earnings of $72

17 million, or $0.97 per share, for the fourth quarter of 2006, compared with net earnings of $70 million, or $1.06 per share, 18 in the fourth quarter of 2005, representing a 3 percent increase 19 in net earnings and an 8 percent decrease in earnings per share (EPS)... 20

22 "However, I and the rest of Indymac's management team are 23 clearly disappointed with these results because they were

24 considerably below our normal earnings growth and ROE levels and fell far short of what we had forecasted for the 25 quarter. In response, I want to assure our shareholders that we 26 are redoubling our efforts to both improve our earnings and tighten up our forecasting processes. 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF TILE SECURITIES EXCHANGE ACT OF 1934 - 63 "Notwithstanding our earnings shortfall for the fourth quarter," continued Perry, "for the full year 2006, we achieved record mortgage loan production, net income and EPS and earned a strong 19 percent ROE, reflecting the strength of our hybrid thrift/mortgage banking business model and solid execution against our strategic plan.

"Tough times, like what we are now facing, are when companies like IndyMac can gain ground on the competition - and that is exactly what we are doing. We had a strong quarter for loan production, with $26 billion in total loans produced, up 8 percent over the prior quarter and 44 percent over Q4-05. With these production gains, we grew our estimated market share(1) to 4.51 percent in the fourth quarter versus 3.83 percent in the third quarter and 2.51 percent one year ago. 12 "At the same time, we maintained reasonable and prudent credit _3 quality in our mortgage loan production. Our fourth quarter

14 production consisted of 97 percent prime loans and 3 percent subprime. The $22 billion of our loan production that we were 15 able to evaluate using S&P's LEVELS model had an estimated 16 lifetime loss percentage of 84 basis points, average FICO of combined loan-to-value (CLTV) ratio of 81 17 703 and average percent, as compared to 82 basis points lifetime loss, 702 FICO 18 and 81 percent CLTV in the prior quarter, and 74 basis points

}9 lifetime loss, 700 FICO and 78 percent CLTV in Q4-05. Also, our mortgage production segment was solidly profitable for the 20 quarter, earning $71 million, up slightly over the prior quarter 21 and up 17 percent over the fourth quarter of 2005.

22 "Bottom line, we are gaining market share, maintaining 23 reasonable credit quality in our mortgage production and

24 earning solid profits, while the mortgage industry, as a whole, is struggling. While no one knows for sure how long the current 25 downturn will last and how severe it will get, when the 26 mortgage business does turns around, I am confident that IndyMac will come out of this down cycle stronger than ever." 27

28 Capital Allocations and Performance by Business Segment

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS I0(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -64 1

2 "We deployed a record $1.8 billion in capital during the quarter in our main business segments - mortgage production, mortgage 3 servicing rights, and the thrift," continued Perry. "While for the 4 third quarter I reported that 'we fired on all three cylinders' with

5 respect to these segments, this quarter saw erosion in the ROEs of each, given the challenging market conditions which have 6 resulted in increased credit costs and narrower net interest and 7 mortgage banking revenue margins."

8 Mortgage Production 9 10 "While we achieved records for loan production and market share, we are not happy with the fact that earnings from the i1 mortgage production segment did not grow this quarter versus

12 last," commented Richard Wohl, IndyMac Bank's President. "Our mortgage banking revenue margin declined to 91 basis 13 points during the fourth quarter from 103 basis points in the 14 prior quarter and 110 basis points in Q4-05. Market conditions contributed to the margin erosion in the form of a shift in our 5 production mix from higher margin ARM loans to lower 1 6 margin fixed rate loans and increased credit costs related to

17 marking-to-market delinquent loans held for sale and increasing our secondary marketing loan repurchase reserve. In addition, -18 our less predictable Conduit business accounted for 39 percent 19 of our production volume during the quarter versus 31 percent one year ago. While the Conduit may have lower profit 20 margins, it earned a solid 29 percent ROE for the quarter on net 21 earnings of $17 million, up 56 percent from one year ago.

22 Contributing strongly again was Financial Freedom, the Company's reverse mortgage subsidiary, which had record net 23 earnings of $18.7 million, up 15 percent from the prior quarter 24 and more than double Q4-05, and achieved an ROE of 58 percent. Overall, the mortgage production segment earned a 42 25 percent ROE, which was down from 53 percent in the third 26 quarter and 54 percent in Q4-05. Looking ahead, there will likely be further 27 erosion in mortgage banking revenue margins and overall profitability before the current down cycle 28 eventually turns up."

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 65 Mortgage Loan Servicing

The Company's portfolio of loans serviced for others increased to $140 billion in the fourth quarter, up 12 percent over the third quarter and 65 percent year over year. However, net earnings for the segment were $14.8 million, down 26 percent from the prior quarter and 5 percent from the same quarter last year. The ROE was also down, to 20 percent for the fourth quarter from 30 percent in the third quarter and 38 percent one year ago.

Commenting on the earnings and ROE declines, John Olinski, '0 EVP in charge of Secondary Marketing and Retained Assets, 'I stated, "While we hedge the servicing asset very well, hedging associated with 12 is not a perfect science, and the imprecision hedging can cause a certain level of quarterly earnings 13 volatility. For the fourth quarter the ROE fell to 20 percent, 14 which is a more realistic level than the outsized and unsustainable ROE levels we achieved in the third quarter and 15 one year ago. Over time we have managed the interest rate risk 16 of the servicing asset well, as illustrated by our year over year 2006, a year which had considerable 17 performance. For all of interest rate risk and volatility, we had strong performance, 18 earning $66 million, up 120% from 2005, and achieving a 26

19 percent ROE versus a 22 percent ROE in 2005.

20 "While we will likely see continued quarterly earnings volatility 21 from the servicing asset going forward, we should be able to achieve stable earnings growth over time if we hedge this asset 22 correctly. Growth will come from continued strong growth in 23 the servicing portfolio as we continue to grow our production

24 volumes. Stability will come from the fact that, unlike our other business segments, servicing is not subject to the competitive 25 margin pressures and credit risks that come with the housing 26 and mortgage production cycles. Over time we expect our ROEs from the servicing asset to be in the range of 18 percent 27 to 23 percent." 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -66 Residuals and Non-Investment Grade Securities

This asset class, which totaled $331 million as of December 31, 2006 and 1.1 percent of the Company's total assets, includes prime and subprime mortgage residuals and non-investment grade securities, as well as HELOC and lot loan residuals which are accounted for in the Thrift segment.

The combined net earnings for this portfolio were $1.7 million for the fourth quarter, down 85 percent from the prior quarter and 76 percent from the same quarter last year. These earnings translated into an ROE of 3.6 percent for the quarter, down 1o from 24 percent in the third quarter and 23 percent one year ago. 11

12 "We are clearly not satisfied with the performance of these portfolios during the quarter, but we feel that this quarter's 13 performance was an aberration that will likely not recur in the i4 future," continued Olinski. "Two main factors drove the earnings decline. First, we implemented a new, more refined 15 prepayment model for our residual securities that resulted in a 1 6 one-time downward valuation adjustment of $5 million. Going

17 forward the new model will enable us to hedge these assets more effectively, improving our performance. Second, HELOC 18 residual securities from 2004 incurred a $6.5 million write- i9 down for credit impairment required by GAAP accounting that we feel does not reflect the true economics of these securities. 20 These securities are callable over the next 4-24 months, and, 21 accordingly, we expect to book gains during this time period

22 more than offsetting the fourth quarter write-downs, such that we expect strong overall returns on our 2004 HELOC residual 23 securities over their lives.

24 "Looking at the portfolio of residuals and non-investment grade 25 securities over a longer time period, our performance has been 26 strong. ROEs for 2004 and 2005 were 27 percent and 26 percent, respectively, and 2006's full year ROE of 17 percent 27 was significantly impacted by the fourth quarter's poor 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 67 performance. In coming quarters, we expect the ROE will return to a more normal range of 15 percent to 20 percent.

3 Thrift Portfolio

Net earnings for the thrift portfolio, which consists of single- family residential mortgage loans (whole loans), consumer and subdivision construction loans, and mortgage backed securities (MBS), were $25 million, down 30 percent from the third quarter and 23 percent from one year ago. "Even though we increased our average earning assets in the thrift investment portfolio, our net interest margin declined substantially to 1.64 percent in the fourth quarter from 2.02 percent both in the third 10 quarter and one year ago," noted Blair Abernathy, Indymac's 11 Chief Investment Officer. "The compression in net interest

12 margin was due primarily to an increased cost of funds for our whole loan and MBS portfolios. Longer term, fixed-rate 13 funding for these portfolios of approximately $1.5 billion at 14 roughly a 2.95 percent cost of funds matured during the quarter and was replaced at a significantly higher funding cost. This has 15 resulted in a more permanent shift in our net interest margin, 16 such that the 1.64 percent margin realized during the quarter is

17 likely what we can expect going forward. In retrospect, we should have more properly planned for this happening. 18

19 "Net earnings for the fourth quarter were also negatively impacted by a GAAP $6.5 million credit-related valuation 20 write-down on HELOC residual securities (noted above) and an 21 increase in the loan loss provision to $9 million from $5 million in million in Q4-05. As result of the 22 the prior quarter and $1.6 a earnings decline, the thrift portfolio produced an ROE of 14 23 percent, below our expectations, versus 20 percent in the prior

24 quarter and 22 percent one year ago. Going forward, we believe the ROE for this portfolio should be in a range of 15 percent to 25 20 percent. We are clearly not happy about the fact that the 26 fourth quarter's performance fell below this range, and we will provide updates on steps we are taking to improve performance 27 as the year progresses." 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 68 Non-performing Assets and Charge-offs Increase from Historic Low Levels

Non-performing assets to total assets increased to 63 basis points during the quarter from 51 basis points in the third quarter and 34 basis points in Q4-05. Net charge-offs increased to $7.6 million during the quarter from $1.9 million both in the prior quarter and one year ago. "We have previously noted that the historically low NPAs and charge-offs we have experienced over the last few years were unsustainable, and, indeed, we saw erosion in our credit metrics during the fourth quarter. In light of this, we are increasing our provision for loan losses," commented Scott Keys, Indymac's Chief Financial Officer. 10 "We expect current credit conditions to worsen further in 2007 11 in connection with the housing market cycle and therefore are

12 planning for significant increases in loan loss provisions and charge-offs in 2007 versus 2006. Nonetheless, we believe that 13 our credit losses will remain manageable inasmuch as 94 14 percent of our assets consists of low credit risk assets (cash and FHLB stock, investment grade MBS securities, mortgage loans 15 held-for-sale) mortgage loans held-for-investment, MSRs and 16 consumer construction loans). In addition, our $6.5 billion

17 single-family mortgage held-for-investment loan portfolio is of prime credit quality, with original average combined loan-to- 18 value ratios (CLTVs) of 73 percent, current average CLTV

19 ratios estimated to be 61 percent, and an average FICO score of 716." 20

23 143. Perry further discussed IndyMac's forecasting problems during an

24 earnings conference call IndyMac held on the same day, January 25, 2007 (the 25

26 "January 25, 2007 Earnings Conference Call") explaining the Company missed

27 its forecasted results "so badly" because of market forces and "a little hubris in 28 terms of our forecasting process." Perry also admitted "[w]e should be doing a CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 69 1 much more detailed bottom's up forecasting in all our business units... and I take

2 responsibility for that." 3

4 144. Perry also discussed the fact that IndyMac's supposedly superior

5 internal controls and forecasting models were insufficient to cope with the 6 7 changing credit market. For example, Perry admitted that despite the Company's

8 best efforts, "[o]ur provision for loan losses is increasing... Credit quality 9 generally is deteriorating so I would say that's something we have to do a better 10

job forecasting, and clearly we want to be a little more conservative as it relates

12 to that... This is something we should have done a better job forecasting on. This 13

14 is something that we probably could have seen better if we had more precise

15 models ..." _6

17 145. Indymac's January 25, 2007 disclosures drove its share price

1 8 downward, to close that same day at $37.71, or 7.35% below the previous day's

closing price of $40.70 per share. 20

21 Defendants' Post Class Period Disclosures

22 146. On March 1, 2007, the Company issued a press release entitled 23

24 "IndyMac Issues 2006 Annual Shareholder Letter, Updating 2007 Forecast" (the

25 "March 1, 2007 Press Release" ). In the March 1, 2007 Press Release, Defendants 26 admitted they knew that the steadily worsening conditions of the housing market 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -70 and yield curve during 2006, was not properly considered in Indymac's financial

reporting - both forecasting and historical accounting:

PASADENA, Calif.--(BUSINESS WIRE)--March 1, 2007-- IndyMac Bancorp, Inc. (NYSE: NDE) ("IndyMac(R)" or the "Company"), the holding company for IndyMac Bank, F.S.B. ("IndyMac Bank(R)"), today released its annual letter to shareholders from Chairman and CEO Michael W. Perry, that will be contained in the Company's annual report, which will be issued as scheduled at the end of March. . .

Dear Shareholders: 0

1i 2006 was a challenging year in the mortgage banking industry.

12 Industry loan volumes of $2.5 trillion were 34 percent below 2003's historic high level and 17 percent lower than in 2005. 13 Mortgage banking revenue margins declined further after sharp 19 declines in 2005, and net interest margins continued to compress, as the yield curve inverted with the average spread 15 between the 10-year Treasury yield and the I -month LIBOR 16 declining from 89 basis points in 2005 to negative 31 basis

.7 points in 2006. To cap it off, the housing industry slowed down significantly, increasing loan delinquencies and non-performing 18 assets and driving up credit costs for all mortgage lenders.

2. Notwithstanding our solid results for the year in the face of challenging market conditions, our year ended on a 22 disappointing note. Our fourth quarter EPS declined both 23 sequentially and versus the fourth quarter of 2005, and we fell

24 short of EPS expectations for the quarter. Also, our ROE of 14.6 percent for the quarter, while solid, was at the lowest level 25 in 23 quarters. While I am disappointed with how we finished 26 2006 and with our outlook for 2007, where EPS will likely be down from 2006 given tough conditions in the mortgage 27 market, I believe we will emerge from this difficult mortgage 28 environment a stronger and more competitive company.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -71 While we run IndyMac with a vision for the long-term, I am acutely aware that we must also deliver results short-term, especially in today's environment, where many shareholders own our stock for relatively brief time periods and, overall, our shares turn over six times per year. Given that reality, here is what we will do to improve performance for our shareholders right now:

1. Manage our credit risks by being smart and prudent in mortgage underwriting guidelines, setting our 10 adjusting our risk-based pricing, making decisions as to what assets go into our investment portfolio and/or distributing our risk into the

12 secondary market, and executing on best in class loss prevention and loss mitigation practices. [Emphasis added.] `_3

Given the robust housing market and highly liquid secondary 6 markets (for even the "riskiest loans'9 - both of which

17 persistedfor years longer than anticipated - and given strong competition in a declining overall mortgage market, IndyMac, 18 in order to compete and grow, also loosened its lending 19 standards, though in a much more responsible way. That we did not do this to the same extent as many other lenders is 20 evidenced by the fact that our mortgage production in 2006 had 21 an average FICO of 701 and average combined loan-to-value

22 (CLTV) ratio of 80 percent as compared to an average FICO of 702 and average CLTV of 76 percent in 2005. Though we 23 suffered increased credit losses in thefourth quarter even 24 after we began tightening our lending standards early in 2006, these losses in no way threaten the viability ofour 25 company. With the benefit of hindsight, if I had to do it over 26 again, I would not do anything materially different for two important 27 reasons : ( 1) Indymac's competitive position in the industry has been significantly enhanced for the long-term by 2 8 the market share we have gained and will hold and grow as a

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 72 result of our product innovation and reasonable risk-taking, and (2) you don't just lose short-term profits if you do not meet the competitive tactics of your major long-term competitors ... you lose customers and you lose your sales force (to your competitors) ... which would, in my view, have impaired IndyMac more than the credit losses we will suffer over the next few years. [Emphasis added.]

Michael W. Perry Chairman and Chief Executive Officer A

11 ADDITIONAL SCIENTER ALLEGATIONS

12 Defendants' Admissions 13

14 147. At the end of the Class Period, Indymac's CEO made the following

15 admissions, among others: 16 (a) The source for forecasting and much of external financial reporti 17

18 was management accounting not GAAP accounting; there was no

19 internal reconciliation between the two: 20

21 When we do forecasting "[w]e should be doing a much more detailed bottom-ups forecasting in all of our business units ... and I take 22 responsibility for that ... and we're going to be expecting the forecast 23 to be accurate ... It will be more like a SOX [Sarbanes-Oxley] approach that we're using for GAAP accounting ... [Presently] the 24 business units are managing risk, and on an economic basis, and so 25 some of them lost sight of their GAAP earnings versus their economic

26 earnings and I think that led to some of the confusion and also us not realizing that there was a big difference between some of those 27 economic and GAAP earnings. 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 73 l

2 [A]s I said earlier in the presentation, is [sic] the units are running those areas very much focused on economic earnings and economic 3 profits because they're not, you know, they're not as focused on 4 dealing with the vagaries of GAAP accounting. For example, swaps, had some fixed-rate swaps that matured in the quarter, and as a 5 they result of those, their cost of funds went up dramatically. They had 6 known about that. They had smoothed out in their economic

7 earnings report, but had not reconciled that to the GAAP earnings, and I think that's one of the things that, you know, I take 8 responsibility for, and the bottom line is that it's something we should 9 have been warning about long before the fourth quarter."

10 (b) Defendants did not hedge, as represented in SEC filings and 11

12 conference calls:

13 "In mortgage production, this is - we had a 13% declinefrom 14 forecast You can see that spread income, you know, we don't hedge as we talk many times, the loans held for sale net interest margin ..." 15

'_7 [Analyst:] "And the other issue is, can you go over this again, this $1.5 billion in liabilities that repriced, and did you really know that

19 was repricing in thefourth quarter? ...[CEO:] Yeah, I mean, I think, you know Paul, obviously I detect some anger there and 20 disappointment ..." 21 (c) In their forecasts , Defendants did not account for the GAAP 22

23 mark-to-market impairment loss on certain residual rights

24 securities, as the market was led to believe: 25

26 "Our home equity securities , at least the 2004 ones, reside in the [T]hrift. And on a GAAP basis, there was a 5 cent impairment for 27 increases in delinquencies and credit losses on those.. . [Analyst:] 28 First, on the write-down of the residuals in the [T]hrift, the GAAP

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 74 1 versus economic recognition, I thought those securities were carried 2 atfair value? . .. [CEO:] No, they're carried at lower of cost to [sic] market." 3

4 (d) Defendants changed their accounting method for certain loan

5 losses without informing the market that the change would dramatically 6 7 affect both forecasted and actual net income: 8 "There are two pieces of valuation loss there. 5 cents of it was we 9 changed to a more precise, loan-level model on some of our residual securities, and that resulted in an increase in our prepayment 10 speeds. It's kind of a one-time increase in our prepayment speeds ... That 11 came in in the [fourth] quarter and wefelt that was the right thing

12 to do because it was something we planned to do, to go to that low- level model and be able to improve our hedging. " 13

14 (e) In stark contrast to statements made in earnings conference

15 calls and SEC filings, Defendants admitted that Indymac's 16

17 methods for determining credit loss reserves was woefully

18 inadequate:

19 [CEO:] "Our provision for loan losses is increasing. . . Credit quality 20 generally is deteriorating so I would say that's something we have to 21 do a better job forecasting, and clearly we want to be a little more

22 conservative as it relates to that. As I said, thrift interest margin compressed 38 basis points. This is something we should have done a 23 better job forecasting on. This is something that we probably could 24 have seen better if we had more precise models ..."

26 [Analyst:] ... "I was kind of 27 doing the math on the [loan loss] provision, given your charge-off guidance and your guidance for net- 28 loan growth, and it seems like the provision could be up pretty

CLASS ACTION AiMMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 75 substantially year-over-year. I think your guidance was about $35 million. If I just put in the charge-offs and reserves and assume a flattish reserve coverage, that's a good 48, 49 million. Add in a little bit for the additional non-performers and it seems like you could be well north of $70 or $75 million."

148. Throughout the Class Period, as in prior years, Indymac increased its

I market share. However, this time, it was by entering into the increasingly risky

Alt-A mortgage loan area. Knowing that relevant market and credit variables were 10 moving against Indymac, Defendants, in violation of SEC reporting rules and 1?

12 GAAP, deferred charges until the fourth quarter of 2006 , at times, admitting as

13 much, while analysts lost credibility in management: 14

15 [Analyst]: "They've changed on the down side on that, even I think, in December, at a coupe of conferences you guys were still saying, 16 you know, things are really looking well. . . I think it's the forecast 17 that really confuses everybody, because it was so bullish in nature, rapidly 18 and it changed rather ..."

19 [CEO:] "So we did, I would grade us a D or an F on the forecasting.

20 . We're owning up to it. I take full responsibility for it."

2. [CEO:] [I]n my opinion the GAAP accounting isn't great and we've 22 stopped using those instruments o.k? Because it doesn't allow for a smooth expensing of the cost of those hedging instruments. And so 23 we've gone to different hedging instruments that have a smoother, 24 more stable, net interest spread ... I personally would rather see all

25 financial services companies mark their entire balance sheet to market each period ... because then what you have, is you have the 26 accounting reflecting the economics." [Analyst:] "So just let me get 27 this straight. You pulled offsome hedges din thefourth quarter] because you didn't like the accounting of it? [CEO:] No. They were 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 76 1 expiring ... So, the real issue is we didn't warn on the timing of when 2 this was going to fall off a cliff . . ."

3 [CEO:] Well, the write-down [in the fourth quarter] on that residual 4 security

5 that was related to prepayments was actually a refinement of the prepayment model where we went to a loan level versus a pool level 6 model on it and so it was an improvement in our ability to project

7 prepayments... It's not something that was some big change. It's just that we had, in a normal quarter, right, we would have something like 8 that and we would have four things that would offset it. In this 9 quarter really, we had everything going one way, pretty much, which

10 was negative.

11 [CEO:] "Charge-ups [sic] also increased, but I would tell you that in

12 the fourth quarter we accelerated some sale of non-performing loans related to our held for investment portfolio. We hadn't been selling in 13 our held for investment portfolio throughout the year, and we sold 14 them all through the fourth quarter. That resulted in charge-offs occurring during that quarter that were not normalized..." i5

16 Finally, as explained above, Defendants almost doubled lndymac's

17 provision for loan losses and charge-offs in the fourth quarter of 2006.

18 149. Not surprisingly, analysts lost confidence in Defendants' i9 statements at the end of the Class Period. "We are downgrading NDE ... we 20

21 NDE's management team lost some credibility. We will revisit our

22 rating and price target when fundamentals improve and management gains 23

24 back credibility with investors." January 26, 2007 FBR Research Report at

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 77 150. Defendants also admitted that they did not reconcile

"economic" or management reporting to GAAP reporting, particularly in

regard to securitized loans for resale:

PAUL MILLER, [analyst , Friedman , Billings Ramsey]: But one of the things that really changed in your model though was not mortgage banking-related per se but was your liability cost. Can you just go over again - because you made a comment that, you kind of implied, I just want to make sure I read this correctly that maybe this was not - this is really an accounting margin loss and not necessarily an 10 economic loss? ... (ellipses in original).

11 DEFENDANT PERRY: Yeah, I mean it ...

12 PAUL MILLER: Not an economic decline ... 13

14 DEFENDANT PERRY: Yeh, I think it ...

15 PAUL MILLER: Can you go over that again? 16 17 DEFENDANT PERRY: I mean, I think it's a reasonably complex issue that, you know, is hard to explain in person, over the phone, but 18 ifyou look at it, some ofthe accounting for some ofthe hedging 19 instruments used to hedge our heldfor investment and mortgage backed securities portfolio, that allowed us to fixfloating rate 20 liabilities to fixed rates, ok, the accounting for those, you know, 21 under GAAP accounting, in my opinion, the GAAP accounting isn't great 22 and we've stopped using those instruments, ok? Because it doesn't allowfor smooth expensing ofthe cost of those hedging 23 instruments. And so we've gone to different hedging instruments that

24 have a smoother, more stable, net interest spread, and I think that we lost sight of some of these that were going to impact us from a GAAP 25 accounting standpoint, because the business unit manages their 26 earnings on an economic basis point. They're looking at a lot of the activities that happen in GAAP are not, you know, 27 economically correct. ... Ipersonally would rather see allfinancial services 28 companies mark their entire balance sheet to market each period

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 78 1 and look at the change in equity. That's where I would like to see

2 accounting to in thefinancial services area, because then what you have is you have the accounting reflecting the economics. if you 3 and I owned IndyMac, that's all we'd want to know, let's mark-to- 4 market the assets and liabilities each quarter, and look at the change in 5 equity, you know, less dividends paid and you know, capital raised, and that's really the economic profit that you and I, if we owned 6 IndyMac, would have achieved, and that would be in perfect 7 alignment to how companies run their business, on an economic basis. So I think that, you know, we learned some very hard lessons about 8 forecasting. We've learned some very hard lessons about 9 reconciling our economic profits to our GAAP accounting profits, and I don't think they're going to be mistakes that we'll make in this 10 magnitude going forward. That's really all I can say about that. 11

12 PA UL MILLER: So let me get this straight. You pulled offsome hedges because you didn 't like the accounting of it? 13

14 DEFENDANT PERRY: No, they were expiring, they were expiring their period. Paul, I don 't want to get in to this more than this right 15 here. We can talk about it off-line. 16

17 PAUL MILLER: Thanks for taking my question.

18 DEFENDANT PERRY: Thanks Paul.

21 RICHARD ECKERT [Analyst, Roth Capital Partners]: ... First, on the write-down ofthe residual securities in the thrift, the GAAP 22 versus economic recognition, I thought those securities were carried 23 atfair value?

24 DEFENDANT PERRY. No, they 're carried at lower [of] cost to 25 [sic] market. 26 RICHARD ECKERT: And second , was the residuals written down in 27 the mortgage sector, and the servicing portfolio, you know, it seems to 28 me that prepayments were an issue there, and I was just wondering

CLASS ACTION AMENDED COMPLAINT FOR IvIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 79 1 why we didn 't see that earlier in the year given the free fall in long- 2 term interest rates?

3 DEFENDANT PERRY: Well, the write-down on that residual 4 security that was related to prepayments was actually a refinement of

5 the prepayment model where we went to a loan level versus a pool level model on it and so it was an improvement in our ability to 6 project prepayments... 7 Tr. at 13, 18 [Emphasis added]. 8

9 151. Notwithstanding, Defendants, keenly aware of the purported

10 difference between GAAP accounting and economic results stated 11

12 repeatedly that it controlled for such: "The objective of our hedging

13 strategies is to mitigate the impact of interest rate changes, on an 14 economic and accounting basis, on net interest income and the fair value of 15

16 our balance sheet." Form 10-Q for the quarter ended March 31, 2006 at 72.

17 [Emphasis added]. 18

19 Insider Tradin

20 152. During the twelve month Class Period, Abernathy sold a large block of 21 his beneficially-owned 22 shares of IndyMac. Abernathy sold 37,700 shares on

23 November 14, 2006 resulting in proceeds of $1,735,566.

27 7 Moreover, non-defendant Olinski sold 40,000 shares on January 31, 2006 28 resulting in proceeds of $1,624,708.

CLASS ACTION & MENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 80 '- 153. Abernathy' s sales of IndyMac common stock were suspicious in

2 i timing. Abernathy's sales were made at the tail end of the Class Period during 3

4 IndyMac's fourth quarter. More importantly, these sales came just days after

5 Abernathy made false and misleading statements regarding margins and the 6

7 following statement regarding the thrift segment in general in the Company's

8 November 2, 2006 Press Release: 9 Heading into the fourth quarter, this portfolio - including $10 10 billion in loans held for investment and $4 billion in securities - 11 is at a record high level and should produce a growing earnings

12 stream and ROEs consistent with our targeted level of 20 to 25 percent based on our current forecasts of interest rates and 13 credit losses. 14

15 November 2, 2006 Press Release

16 154. Later, in the January 25, 2007 Press Release, Abernathy would 17

18 comment on the same quarter, stating "[i]n retrospect, we should have more

19 properly planned for this [a more permanent negative shift in the net interest

20 margin] happening" and that fourth quarter net earnings were "negatively 21

22 impacted" by "an increase in the loan loss provision to $9 million from $5 million

23 in the prior quarter and $1.6 million in Q4-05." 24

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -8I Other Undisclosed Weaknesses In Internal Controls Were Known to Defendants

155. Section 13(b)(2)(B) of the Exchange Act requires every issuer that

has securities registered pursuant to Section 12 of the Exchange Act to devise and

maintain a system of internal accounting controls sufficient to reasonably assure,

among other things, that transactions are recorded as necessary to permit

10 preparation of financial statements in conformity with GAAP.

11 156. Defendants touted various methods by which they controlled interest 12 rate risks on Indymac's various investments, including servicing-related assets: 13

14 HEDGING INTEREST RATE RISK ON SERVICING- 15 RELATED ASSETS

16 i7 With respect to the investment in servicing-related assets 18 (AAA-rated and agency interest -only securities , non-investment grade residual securities and MSRs), the Company is exposed 19 to interest rate risk as a result of other than predicted 20 prepayment of loans. Our retained assets and servicing division is responsible for the management of interest rate and 21 prepayment risks in the servicing-related assets, subject to 22 policies and procedures established by, and oversight from, our

23 management-level Interest Rate Risk Committee ("IRRC"), Variable Cash Flow Instruments Committee ("VCI ") and 24 Enterprise Risk Management ("ERM') group, and our Board 25 ofDirectors-level ERM Committee. The objective of our hedging strategy is to mitigate the impact ofchanges in 26 interest rates on the net economic value ofthe balance sheet 27 and quarterly earnings, not to speculate on interest rates. As

28 such, we manage the comprehensive interest rate risk ofour servicing-related assets usingfinancial instruments and our

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -82 servicing portfolio retention efforts. Historically, we have hedged servicing-related assets using a mix of securities on our balance sheet, such as AAA-rated principal-only securities, prepayment penalty securities, buying and/or selling mortgage- backed or U.S. Treasury securities, as well as derivatives such as futures, floors, interest rate swaps, or options. As there are no hedge instruments that would be perfectly correlated with these hedged assets, we use a mix of the above instruments designed to correlate well with the hedged servicing assets and our anticipated servicing retention rates. The MSRs and Retention Asset segment results on page 24 reflect the entire risk management result.

10 2005 Form l0-K at 50 [Emphasis added]. 11

12 157. Defendants also boasted of Indymac 's "Interest Rate Sensitivity"

13 controls: 1 4

15 In addition to our hedging activities to mitigate the interest rate risk in our pipeline of mortgage loans held for sale, rate locks -16 and our investment in servicing-related assets, we perform 17 extensive, company-wide interest rate risk analyses. Our 18 primary measurement tool used to evaluate interest rate risk over the comprehensive balance sheet is net portfolio value i9 ("NPV") analysis. The NPV analysis estimates the exposure of 20 the fair value of net assets attributable to shareholders' equity to changes in interest rates. 21

22 The following table sets forth the NPV and change in NPV that we 23 estimate might result from a 100 basis point change in interest rates as of December 31, 2005, and December 31, 2004. 24 Our NPV model has been built to focus on the Bank alone as 25 the $1.1 billion of assets at the Parent Company and its non- bank subsidiaries have very little interest rate risk exposure. 26

27 2005 Form 10-K at 62.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -83 1 158. Finally, Defendants spoke of even another practice in place for 2 secondary market inventory (i.e., GSEs, and whole loans and Securitized trusts), 3

4 credit and market reserves:

5 The Company maintains secondary market reserves for losses 6 that arise in connection with loans that we may be required to 7 repurchase from whole loan sales, securitization transactions and sales to the GSEs. These reserves, which totaled 8 $27.6 million at December 31, 2005, have two general 9 components: reserves for repurchases arising from representation and warranty claims and reserves for disputes 10 with investors and vendors with respect to contractual 11 obligations pertaining to mortgage operations. See further

12 discussion on legal matters associated with loans sold in "Note 21 - Commitments and Contingencies" included in the 13 Company's consolidated financial statements incorporated 14 herein. Also included in the reserves was a $1.3 million charge provided in the third quarter of 2005 (reduction of gain on sale 15 of loans) for potential investor claims on loans that we 16 previously sold and which are collateralized by properties in the

17 areas affected by Gulf Coast Hurricanes. The amount estimated is based on the current information available to us and could 18 vary from the actual amount.

19 2005 Form 10-K at 67. 20

21 159. In contrast to these Class Period statements, Defendants admitted

22 that they knew or were reckless in not knowing that there were either no controls 23

24 in place that alerted them to the fact that hedges were maturing and were not

25 being replaced or that such maturation ofhedges without replacement was 26 deliberate in order to speculate that interest 27 rates would move in a favorable

28 manner:

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 84 1 PAUL MILLER (analyst): So let me get this straight. You

2 pulled off some hedges because you didn't like the accounting of it? 3

4 PERRY: No. They were expiring, they were expiring their in this more than right here. 5 period. Paul, I don't want to get to We can talk about it off-line. 6

7 MICHAEL VINCIQUERRA (analyst, Raymond James & 8 Associates): ... I don't want to get back to Paul's issue too 9 deeply, but one simple question that I think he was getting at: Are there economic returns that will come back to you, because 10 you said there was a difference between economic and GAAP 1i accounting, and they were hedging on an economic basis. Will

12 actually receive those benefits on an economic basis in future periods? 13

14 PERRY: No, I think that what it was that we were looking at it and saying our economic returns were lower but still 15 acceptable. So the real issue is we didn't warn on the timing 16 of when this was going to fall off a cliff, and I that's something

17 that our forecasting system wasn't focused on, and I think that it didn't have the detail and rigor that it should have had there. 18

19 (Jan. 25 , 2007, Tr. at 13).

20 160. This previously undisclosed impact of an expiring hedge resulted in 21

22 a greater than $6.5 million loss for the quarter ended December 31, 2006, a $0.05

23 per share miss from previously forecasted earnings per share of $1.35 for the 24

25 same period.

26 161. Thus, Defendants violated Section 13(b)(2)(B) of the Exchange Act 27 by, among other things, failing to maintain the required internal accounting 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(s) OF THE SECURITIES EXCHANGE ACT OF 1934 - 85 1 controls necessary to integrate and coordinate hedge expiration and accounting

2 and exposing the Company to unintended and undisclosed risks. Further, this 3

4 impaired the Company's ability to timely prepare its financial statements in

5 accordance with GAAP and provide accurate forecasts. 6

7 162. See also AICPA' s Generally Accepted Auditing Standards

8 definition of "Material Weakness" in internal controls: 9 A material weakness is a condition that precludes the entity's 10 internal control from providing reasonable assurance that 11 material misstatements in the financial statements in the

12 financial statements will be prevented or detected on a timely basis. 13 AT § 501.55. 14 Reckless Disregard for GAAP and SEC Reporting Rules 15

16 163. During the Class Period, as set forth herein, Defendants misled the

17 investing public by inflating the price of the Company's securities, by publicly 18

19 issuing false and misleading financial statements and omitting to disclose

20 material facts necessary to make Defendants' statements not false and 21 misleading. 22 Said statements and omissions were materially false and misleading

23 in that they failed to disclose material adverse information and misrepresented 24 the truth about the Company, its financial condition, results of operations, and 25

26 prospects in violation of the federal securities laws and GAAP. Defendants'

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -S6 1 widespread and flagrant violations of the basic and core principles of GAAP are

2 strongly probative of their scienter. 3 I

4 164. GAAP consists of those principles recognized by the accounting

5 profession as the conventions, rules, and procedures necessary to define accepted 6 7 accounting practice at the particular time. Regulation S-X, 17 C.F.R. § 210.4-

8 01(a)(1), provides that financial statements that are not prepared in compliance 9 with GAAP, are presumed to be misleading and inaccurate. 10

11 165. Statements of Financial Accounting Standards No. 5, Accounting

12 for Contingencies ("SFAS 5"), states that: 13

14 An estimated loss from a loss contingency... shall be accrued by a charge to income if both of the following conditions are 15 met: 16

17 (a) Information available prior to issuance of the financial statements indicates that an asset had 18 been impaired or that a liability had been incurred 19 at the date of the financial statements. It is implicit in this condition that it must be probable that one 20 or more future events will occur confirming the 21 fact of the loss, and;

22 (b)The amount of the loss can be reasonably 23 estimated.

25 Disclosure of the nature of an accrual made ... and the amount 26 accrued may be necessary for the financial statements not to be misleading. 27

28 SFAS 5,11 8,9.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 87 1

2 166. SFAS 5 requires the following disclosures if no loss accrual is made

3 in the financial statements: 4 5 If no accrual is made for a loss contingency because one or both of the conditions in paragraph 8 are not met, or if an 6 exposure to a loss exists in excess of the amount accrued 7 pursuant to the provisions of paragraph 8, disclosure of the 8 contingency shall be made when there is at least a reasonable possibility that a loss or an additional loss may have been 9 incurred. The disclosure shall indicate the nature of the 10 contingency and shall give an estimate of the possible loss or range of loss or state that such an estimate cannot be made. 11

13 [Footnote 6:] Disclosure is also required of some loss 14 contingencies that do not meet the condition in paragraph 8(a) - 15 namely, those contingencies for which there is a reasonable possibility that a loss may have been incurred even though 16 information may not indicate that it is probable that an asset 17 had been impaired or a liability had been incurred at the date of

18 the financial statements.

19 167. Defendants violated SFAS No. 5 in that during the Class Period 20

21 Indymac's Form 10-K, and Forms 10-Q failed to accrue for and/or disclose credit

22 losses that were at least "probable" and/or "reasonably possible." 23 168. Lending and other financial institutions' "management's 24

25 methodology" for assessing the adequacy of credit losses should, at least: (a)

26 include a detailed and regular analysis of the loan portfolio and off-balance sheet 27

28 instruments with credit risk; (b) include procedures for timely identification of

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 88 1 problem credits; (c) be used consistently; (d) consider all known relevant internal 2 and external factors that may affect collectibility; (e) consider all loans (whether 3

4 on an individual or pool-of-loans basis) and other relevant credit exposure; (f)

5 consider the particular risks inherent in the different kinds of lending; (g) 6 7 consider current collateral fair values, where applicable; (h) be performed by 8 competent and well-trained personnel; (i) be based on current and reliable data; 9 and (j) be well documented, with clear explanations of the supporting analysis 10

11 and rationale. AICPA Audit and Accounting Guide, Depository and Lending

12 Institutions ("AAG-DEP"), at 204 (AICPA May 1, 2007). 13

14 169. Defendants violated SFAS No. 5 for failing to provide for probable

15 loan losses during the Class Period. Defendants later admitted that although they 16 17 knew of the likelihood of losses on Alt-A and other subprime mortgage loans,

18 they failed to increase their credit reserves and enhance a known improvement to 19 the monitoring thereof until the fourth quarter of 2006. 20

21 170. Despite these failures, Defendants boasted of Indymac's credit

22 controls throughout the Class Period: 23

24 We utilize several methodologies to estimate the adequacy of our [Allowance for Loan Losses ("ALL")] to ensure that the 25 allocation of the ALL to the various portfolios is reasonable 26 given current trends and the economic outlook. In this regard, we segregate assets into 27 homogeneous pools of loans and heterogeneous loans. Homogeneous pools of loans exhibit 28 similar characteristics and, as such, can be evaluated as pools of

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 89 1 assets through the assessment of default probabilities and 2 corresponding loss severities. Our homogeneous pools include residential mortgage loans, manufactured home loans and home 3 improvement loans. The estimate of the allowance for loan 4 losses for homogeneous pools is based on expected inherent

5 losses resulting from two methodologies: 1) Internal Loan Loss Estimation Model - This model estimate losses based on 6 several key loan characteristics. . . . 2) Historical Loan 7 Analysis - This analysis compares the level of allowance to the historical losses actually incurred in prior years. Our builder 8 construction loans generally carry higher balances and involve 9 unique loan characteristics that cannot be evaluated solely through the use of default rates, loss severities and trend 10 analysis. To estimate an appropriate level of ALL for our 11 heterogeneous loans, we constantly screen the portfolios on an

12 individual asset basis to classify problem credits and to estimate potential loss exposure. In this estimation, we determine the 13 level of adversely classified assets (using the classification 14 criteria described below) in a portfolio and the related loss potential and extrapolate the weighing of those two factors i 5 across all assets in the portfolio. 16 171. Amazingly, Perry admitted that even though the Company had 17

18 sophisticated means to assess credit risk, such procedures were not implemented

19 until the fourth quarter of 2006, causing an unexpected material downward 20

21 adjustment to net earnings of at least 5 cents per share. See paragraph 142.

22 172. Further, Pursuant to Item 303 of Regulation S-K, registrants are 23 required to disclose the existence of known 24 trends, events or uncertainties that it

25 reasonably expects will have a material unfavorable impact on net revenues or

26 income. See 17 C.F.R. § 229.303. 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -90 1 173. Defendants violated Item 303 by failing to disclose the existence of

2 known trends, events or uncertainties as to IndyMac's business, as discussed 3

4 passim, that they reasonably expected would have a material, unfavorable impact

5 on net revenues or income or that were reasonably likely to result in the 6 7 Company's liquidity decreasing in a material way, and that failure to disclose the

8 information rendered the statements that were made during the Class Period 9 materially false and misleading. 10

11 174. The foregoing is particularly so, given that Defendants repeatedly

12 provided earnings guidance at conference calls and analyst presentations, and 13

14 even in SEC filings, while also touting Indymac's forecasting reliability.

15 LOSS CAUSATION/ECONOMIC LOSS 16

17 175. During the Class Period, as detailed herein, Defendants engaged in a

18 scheme to deceive the market and a course of conduct that artificially inflated

19 IndyMac's stock price and operated as a fraud or deceit on Class Period 20

21 purchasers of IndyMac stock. During the Class Period, Defendants achieved a

22 facade of stable revenue results, success, growth and strong future business 23

24 prospects by:

25 • Disseminating financial forecasts Defendants knew 26 lacked a reasonable basis;

27 • Disseminating statements Defendants knew were false and misleading regarding, inter alia, the Company's underwriting, 28 hedging, loan loss provisions, secondary market reserves,

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -91 market forces, internal controls, and compliance with securities

2 laws.

3 176. Defendants' false and misleading statements and forecasts caused 4

5 IndyMac stock to trade at artificially inflated levels, reaching as high as $50.11

6 per share, throughout the Class Period. 7

8 177. On January 25, 2007, Defendants were forced to publicly disclose

9 IndyMac was not the financially sound company investors had been led to _o believe it was during the Class Period. Defendants revealed it would be unable

2 to achieve the unreasonably high forecasted results for the fourth quarter of 2006,

13 and that the manner in which the forecasts were determined was so flawed that 14 i5 complete overhaul was necessary. Defendants further explained they were not

16 able to weather the industry downturns as had been previously claimed, and that 17

18 the Company's highly touted hedging activities had been unsuccessful. As a

19 direct result of Defendant's fraud and falsity, the artificial inflation of its

20 common stock evaporated, and its price per share fell 7% to close at $37.71, 21

22 damaging investors.

23 178. The timing and magnitude of IndyMac's stock price decline negates 24

25 any inference that the loss suffered by Plaintiffs and other Class members was

26 caused by changed market conditions, macroeconomic or industry factors or 27 Company-specific facts unrelated to the Defendants' fraudulent conduct. 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 92 1 APPLICABILITY OF THE PRESUMPTION OF RELIANCE:

2 FRAUD-ON-THE-MARKET DOCTRINE 3 179. At all relevant times, the market for IndyMac common stock was an 4

5 efficient market for the following reasons, among others:

6 (a) IndyMac stock met the requirement for listing, and was listed 7

8 and actively traded on the NYSE, a highly efficient and automated market;

10 (b) As a regulated issuer, IndyMac filed periodic public reports

11 with the SEC and NYSE; 12 (c) IndyMac regularly communicated with public investors via 13

14 established market communication mechanisms, including through regular

15 dissemination of press releases on the national circuits of major newswire 16

17 services and through other wide-ranging public disclosures, such as

18 communications with the financial press and other similar reporting 19

20 services; and

21 (d) IndyMac was followed by several securities analysts

22 employed by major brokerage firms who wrote reports which were 23

24 distributed to the sales force and certain customers of their respective

25 brokerage firms. Each of these reports was publicly available and entered 26

27 the public marketplace.

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 93 1 180. As a result of the foregoing, the market for IndyMac common stock

2 promptly digested current information regarding IndyMac from all publicly- 3

4 available sources and reflected such information in IndyMac's stock price. Under

5 these circumstances, all purchasers of IndyMac common stock during the Class 6 Period suffered similar injury, and a presumption of reliance applies.

s NO STAUTORY SAFE HARBOR EXISTS 9 FOR DEFENDANTS ' STATEMENTS 1 0 1-^ 181. The statutory safe harbor provided for forward-looking statements

2 under certain circumstances does not apply to any of the false statements pleaded _3 in this complaint. The specific statements pleaded herein either were not 1 4

5 identified as "forward-looking statements" when made or were not accompanied

16 by meaningful cautionary statements identifying important factors that could 17

18 cause actual results to differ materially from those in the purportedly forward-

19 looking statements. To the extent that the statutory safe harbor does apply to any 20 forward-looking statements pleaded herein, Defendants are liable for those false 21

22 forward-looking statements because at the time each of those forward-looking

23 statements was made, the particular speaker knew that the particular forward- 24

25 looking statement was authorized and/or approved by an executive officer of

26 IndyMac who knew that those statements were false when made. 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -94 1 CLASS ACTION ALLEGATIONS

2 182. Lead Plaintiffs bring this action as a class action pursuant to Federal 3

4 Rule of Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all

those who purchased or otherwise acquired the common stock of IndyMac from 6

7 January 26, 2006 through January 25, 2007, inclusive and who were damaged 8 thereby. Excluded from the Class are Defendants, the officers and directors of the 9 Company, at all relevant times, members of their immediate families and their

legal representatives, heirs, successors or assigns and any entity in which

12 Defendants have or had a controlling interest. 13

14 183. The members of the Class are so numerous that joinder of all

15 members is impracticable. Throughout the Class Period, IndyMac's common 16

17 stock was actively traded on the NYSE. While the exact number of Class

18 members is unknown to Plaintiffs at this time and can only be ascertained i9 through appropriate discovery, Plaintiffs believe that there are hundreds or 20

21 thousands of members in the proposed Class. Record owners and other members

22 of the Class may be identified from records maintained by IndyMac or its transfer 23

24 agent and may be notified of the pendency of this action by mail, using the form

25 of notice similar to that customarily used in securities class actions. 26

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -95 184. Plaintiffs' claims are typical of the claims of the members of the

L2 Class as all members of the Class are similarly affected by Defendants' wrongful 3

4 conduct in violation of federal law that is complained of herein.

4 185. Plaintiffs will fairly and adequately protect the interests of the 6 members of the Class and they have retained counsel competent and experienced

S in class and securities litigation. 9 186. Common questions of law and fact exist as to all members of the 10

11 Class and predominate over any questions solely affecting individual members of

,2 the Class. Among the questions of law and fact common to the Class are: 13

14 (a) whether the federal securities laws were violated by

15 Defendants' acts as alleged herein; 16

17 (b) whether statements made by Defendants to the investing

18 public during the Class Period misrepresented material facts about the

19 business, operations and management of IndyMac; and 20

21 (c) to what extent the members of the Class have sustained

22 damages and the proper measure of damages. 23

24 187. A class action is superior to all other available methods for the fair

2J and efficient adjudication of this controversy since joinder of all members is 26 impracticable. Furthermore, as the damages suffered by individual Class 27

28 members may be relatively small, the expense and burden of individual litigation

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 96 make it impossible for members of the Class individually to redress the wrongs

2 done to them. There will be no difficulty in the management of this action as a 3

4 class action.

5 FIRST CLAIM 6 Violations of Section 10(b) of the Exchange Act 7 And Rule 10b-5 Promulgated Thereunder Against All Defendants 8

9 188. Plaintiffs repeat and reallege each and every allegation contained 10 it above.

12 189. Each of the Defendants: (a) knew or recklessly disregarded material

13 adverse nonpublic information about the Company's financial results and then =4

15 existing business conditions, which was not disclosed; and (b) participated in

16 drafting, reviewing and/or approving the misleading statements, releases, reports, 17 of and about the Company. 18 and other public representations

19 190. During the Class Period, Defendants, with knowledge of or reckless

20 disregard for the truth, disseminated or approved the false statements specified 21

22 above, which were misleading in that they contained misrepresentations and

23 failed to disclose material facts necessary in order to make the statements made, 24

25 in light of the circumstances under which they were made, not misleading.

26 191. Defendants have violated § 10(b) of the Exchange Act and Rule 1Ob- 27 5 promulgated thereunder in that they: (a) employed devices, schemes and 28

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 97 1 artifices to defraud; (b) made untrue statements of material facts or omitted to

2 state material facts necessary in order to make statements made, in light of the 3

4 circumstances under which they were made, not misleading; or (c) engaged in

5 acts, practices and a course of business that operated as a fraud or deceit upon the 6 7 purchasers of IndyMac stock during the Class Period.

8 192. Plaintiffs and the Class have suffered damage in that, in reliance on 9 I the integrity of the market, they paid artificially inflated prices for IndyMac to

11 stock. Plaintiffs and the Class would not have purchased IndyMac stock at the

12 prices they paid, or at all, if they had been aware that the market prices had been 13

14 artificially and falsely inflated by Defendants' false and misleading statements.

15 193. As a direct and proximate result of Defendants' wrongful conduct, 16

17 Plaintiffs and the Class suffered damages in connection with their respective

18 purchases of the Company's common stock during the Class Period. 19 SECOND CLAIM 20 Violations of Section 20(a) of the Exchange Act 21 Against the Individual Defendants

22 194. 23 Plaintiffs repeat and reallege each and every allegation contained

24 above.

25 195. The Individual Defendants acted as controlling persons of the 26

27 Company within the meaning of § 20(a) of the Exchange Act. By reason of their

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 98 1 I senior executive positions they had the power and authority to cause the 2 Company to engage in the wrongful conduct complained of herein. 3

4 196. By reason of such wrongful conduct, the Individual Defendants are

5 liable pursuant to § 20(a) of the Exchange Act. As a direct and proximate result 6 7 of their wrongful conduct, Plaintiffs and the other members of the Class suffered

8 damages in connection with their purchases of IndyMac stock during the Class 9 Period. 0

11 PRAYER FOR RELIEF

12 WHEREFORE, Plaintiffs pray for relief and judgment, as follows: 13

14 A. Determining that this action is a proper class action and certifying

15 Plaintiffs as class representatives under Rule 23 of the Federal Rules of Civil 16

17 Procedure;

-8 B. Awarding compensatory damages in favor of Plaintiffs and the other

19 Class members against all Defendants, jointly and severally, for all damages 20

21 sustained as a result of Defendants' wrongdoing, in an amount to be proven at

22 trial, including interest thereon; 23

24 C. Awarding Plaintiffs and the Class their reasonable costs and

25 expenses incurred in this action, including counsel fees and expert fees; and 26 D. Such other and further relief as the Court may deem just and proper. 27

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - 99 1 JURY TRIAL DEMANDED

2 Plaintiffs hereby demand a trial by jury. 3

4 I Dated: September 7, 2007 Respectfully submitted, 5

6 SCHIFFRIN BARROWAY TOPAZ 7 & KESSLER, LLP

9 KI' hael K. *off Christopher L. Nelson 10 John J. Gross 11 280 King of Prussia Road Radnor, PA 19087 12 (610) 667-7706 13 Lead Counsel for Plaintiffs

14 GLANCY BINKOW & GOLDBERG, LLP 15 Lionel Z. Glancy 16 Frederick W. Gerkens, III MacDiarmid 17 Dale 1801 Avenue of the Stars 18 Suite 311 i9 Los Angeles, CA 90067 (310) 201-9150 20 Liaison Counsel for Plaintiffs 21 COHEN, MILSTEIN, HAUSFELD 22 & TOLL, P.L.L.C. 23 Steven J. Toll

24 Andrew N. Friedman Matthew B. Kaplan 25 1100 New York Avenue, N.W. 26 Suite 500, West Tower Washington, DC 20005 27 (202) 408-4600 28 Additional Counsel for Plaintiffs

CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934 -100 PROOF OF SERVICE 2 I, the undersigned, say: 3 I am a citizen of the United States and am employed in the office of a member of the Bar of this Court . I am over the age of 18 and not a party to the within action. 4 My business address is 1801 Avenue of the Stars , Suite 31 1, Los Angeles, California 90067.

6 On September 7, 2007, 1 served the following: 7 CLASS ACTION AMENDED COMPLAINT FOR VIOLATIONS OF SECTIONS 10(B) AND 20(A) OF THE 8 SECURITIES EXCHANGE ACT OF 1934

9 on the parties shown below by placing a true copy, thereof enclosed in a sealed Angeles, 10 envelope with postage thereon hilly prepaid in the United States mail at Los California. 11 Matthew B Kaplan 12 Stuart L. Berman Cohen Milstein I-lausfeld & Toll, PLLC Sean M. Handler 1100 New York Avenue, NW, 13 *Ian D. Berg Suite 500, West Tower Christopher L. Nelson Washington, DC 20005 14 John J. Gross Attorneys for Plaintiff Claude A. Reese Michael Yarnoff 15 Schiffrin Barroway "Topaz & Kessler, LLP Evan .) Smith 280 King of Prussia Road Brodsky and Smith 16 Radnor, PA 19087 9595 Wilshire Boulevard , Suite 900 * Attorney for Sven Mossberg and IVayman Beverly Hills , CA 90212 17 Tripp (Intervenor Pl(intiffs) * Attorney for Sven Mossberg and Wayinan 18 Attorneys for Plaintiff Claude A. Reese Tripp (Intervenor Plaintifj)

19 Glancy Binkow and Goldberg Edwin V. Woodsome, Jr. Frederick W Gerkens, III Daniel J. Tyukody 20 1501 Broadway, Suite 1900 Michael C. Tu New York, NY 10036 Orrick, Herrington & Sutcliffe LLP 21 777 South Figueroa Street, Suite 3200 Attorneys for Plaintiff Claude A. Reese Los Angeles, CA 90017 22 William Frederick Salle Counselfor Defendants 23 Law Offices of William Frederick Salle 425 East Colorado Street , Suite 755 24 Glendale , CA 91205 Telephone : 818.543.1900 25 Facsimile: 818.543.1550 26

27 Executed on September 7, 2007, at Lo ngeles, California. I certify under penalty of perjury that the foregoing is correct. 28

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