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MARC M. SELTZER (54534) FILED 1 mseltzer(u^susmangodfrey.com cte^h u s ^iSrr^Irr conRr RYAN C. KIRKPATRICK (243824) 2 rkirkpatrick((cc susmanggodfrey.com MAY 2 11 SUSMAN UDFREY L.L.P.

3 1901 Avenue of the Stars, Suite 950 g^NTRAL D1S7R1CT OF CALIFORNIA Los Angeles, CA 90067 DEPUTY 4 Tel: (310) 789-3100 Fax: (310) 789-3150 5 SHERRIE R. SAVETT 6 (Admitted Pro Hac Vice) ssavett bm.net 7 ART R STOCK (Admitted Pro Hac Vice) 8 astock(a^bm.net PHYLLIS M. PARKER 9 (Admitted Pro Hac Vice) pparker((aa^^bm.net 10 BERGER & MONTAGUE, P.C. 1622 Locust Street 11 Philadelphia, PA 19103 Tel: (215) 875-3000 12 Fax: (215) 875-4604 13 Attorneys for Lead Plaintiff and the Class 14 (See Signature Page for Name and Address of Additional Counsel for Plaintiff) 15 UNITED STATES DISTRICT COURT 16 CENTRAL DISTRICT OF CALIFORNIA 17 WESTERN DIVISION 18 ROBERT C. DANIELS, on Behalf of 19 Himself and All Others Similarly Case No. CV 08-03812 GW(VBKx) Situated, 20 Plaintiff, CLASS ACTION 21

22 vs. FIFTH AMENDED CONSOLIDATED CLASS 23 MICHAEL W. PERRY, A. SCOTT ACTION COMPLAINT FOR KEYS, and ERNST & YOUNG LLP, VIOLATION OF FEDERAL 24 SECURITIES LAWS Defendants. 25 JURY TRIAL DEMANDED

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1 TABLE OF CONTENTS pale 2 I. INTRODUCTION 1

3 II. OVERVIEW OF THE CASE 2 4 5 A. The Treasury Report 3

6 B. The Trustee Complaint 4

7 C. The FDIC Complaint 6

8 D. The SEC Complaints 8 9 1. The Undisclosed Change in IndyMac's Capital Ratio 10 Calculation 11

11 2. IndyMac's Fraudulent DSPP Sales 12 12 3. Perry Authorizes IndyMac's Backdated Capital 13 Contribution 13

14 E. Defendants' False and Misleading Statements 14 15 III. THE PARTIES AND CRITICAL PLAYERS 21 16 A. Plaintiff 21 17 18 B. The Holding Company and the Bank 22

19 C. Defendants 23

20 1. Officers 23 21 2. Ernst & Young LLP 30 22 IV. JURISDICTION AND VENUE 31 23 V. CLASS ACTION ALLEGATIONS 32 24 25 VI. FACTUAL BACKGROUND REGARDING INDYMAC AND ITS CORE LENDING BUSINESS 34 26 27 A. General Background 34 28

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1 B. IndyMac's Underwriting, Risk Management, and Appraisal Practices Were Grossly Deficient Prior to and During the Class 2 Period 39

3 C. Internal Audits, Outside Audits, and OTS Examinations 4 Repeatedly Identified Underwriting, Appraisal and Internal Control Deficiencies at IndyMac 64 5 VII. DEFENDANTS MISLEAD AND DEFRAUD INVESTORS 69 6 7 A. Defendant Perry Misleads Investors Regarding IndyMac's Risk 8 Management, Underwriting, and Appraisal Practices 69

9 1. False and Misleading Statements Related to Underwriting, Risk Management, and Appraisals 69 10 2. Defendant Perry Acted With Scienter 72 11 12 B. Ernst's Unqualified Opinions Regarding IndyMac's Internal Controls Over Financial Reporting Were Materially Misstated 13 When Made 76 14 1. Applicable Accounting Standards, the Definition of 15 "Material Weaknesses" in Internal Controls, and Ernst's Duty to Independently Assess Internal Controls 77 16 17 2. IndyMac's Internal Controls Were Not Effective and Ernst Did Not Perform its Audits in Accordance with the 18 Standards of the PCAOB and GAAS 82 19 3. Ernst Acted with Scienter when it Certified that Internal 20 Controls Were Effective in the 2006 10-K Signed on 86 21 February 26, 2007 22 4. Ernst Acted with Scienter when it Certified that Internal Controls Were Effective in the 2007 10-K Signed on 23 February 28, 2008 89 24 C. On February 12, 2008, Defendants Perry and Keys Mislead 25 Investors Regarding IndyMac's Dealings With the Office of 26 Thrift Supervision and the Soundness of the Company 91 27 28

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1 1. OTS Initiates Its Review of IndyMac Four Months Early and Issues an Initial Ratings Downgrade on January 17, 2 2008 91

3 2. Perry, Keys, and other IndyMac Officials Internally 4 Discuss the Dire Financial Condition of IndyMac 95

5 3. Perry and Keys Make False and Misleading Statements 6 Regarding IndyMac's Dealings with OTS and IndyMac's Financial Condition Following the Commencement of the 7 January 2008 Emergency Examination. 95 8 4. Perry and Keys Made the Foregoing Statements With 9 Scienter 98

10 D. Defendants Perry and Keys Make Misleading Statements About 11 IndyMac's Liquidity During the Class Period 99 12 1. False Statements on Liquidity 99 13 2. The Truth About IndyMac's Grave and Incurable 14 Liquidity Crisis 101 15 3. Defendants Perry's and Keys' False Statements About IndyMac's Liquidity Were Made With Scienter 103 16 17 E. Defendant Ernst Misleads Investors by Failing to Include a "Going Concern" Reservation in Its 2007 Audit Opinion 107 18 1. Ernst Violated the Auditing Standards Governing the 19 Issuance of a "Going Concern" Reservation 107 20 2. Ernst Acted with Scienter in Failing to Provide a Going 21 Concern Reservation in Its 2007 Audit Opinion 111 22 F. Defendant Perry Misleads Investors Regarding IndyMac's 23 Dramatic Over-Reliance on Brokered Deposits 117

24 1. During the Class Period, IndyMac Relied Excessively on 25 Brokered Deposits to Maintain Its Reported Solvency, and Later Admitted That Those Brokered Deposits Were 26 Used from an "Expediency Perspective" Only 117 271 28

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1 2. False and Misleading Statements Relating to Brokered Deposits 120 2 3. Defendant Perry Acted With Scienter 123 3 4 G. All Defendants Misrepresent IndyMac's Assets, Liabilities and Earnings in Financial Statements 124 5 1. Defendants Perry and Keys Authored Materially 6 Misleading Financial Statements 126 7 2. Ernst's False and Misleading Statements Opining That 8 IndyMac's 2006 and 2007 Financials Conformed with 9 GAAP and GAAS 127

10 3. The Facts Demonstrating the Inadequacy of IndyMac's Allowances for Loan Losses Were Known to Each 11 Defendant 129 12 4. Defendants Knew of and Ignored Numerous Red Flags 13 Demonstrating that the Allowance for Loan Losses in 14 2006 and 2007 Were Insufficient. 134 15 5. Defendants' Certification of Insufficient ALL in the Face of Rising Delinquencies, Declining Property Values, 16 Riskier Loan Portfolios, and Numerous Adverse Audit 17 Findings and Internal Control Problems, Violated GAAP 138 18 6. Defendants' Approval of Decreasing ALL for 2006 19 Violated Applicable Regulatory Guidance on Directional Consistency and Rendered the 2006 Financial Statements 20 Materially False and Misleading 143 21 7. Defendant Ernst Deliberately Disregarded Guidance 22 Regarding ALL Provided in the 2006 AICPA Audit and Accounting Guide 147 23 24 8. The Standards of GRAS, and Contemporaneous AICPA Audit Risk Alerts, Required Ernst to Ensure that it Had a 25 Thorough Understanding of IndyMac's Business, Internal 26 Controls and Awareness of Growing Risks Facing the Banking Industry 150 27 28

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1 9. Ernst Ignored the AICPA Audit Risk Alert for 2007/2008 Which Identified Specific Risk Factors Relating to 2 IndyMac 154

3 10. The Falsity of IndyMac's ALL Is Confirmed by The 4 Astonishing Degree to Which IndyMac's Reserves Proved Inadequate 155 5 6 11. Post-Class Period Improprieties and GAAP Violations Confirm that Defendants' Manipulation of IndyMac's 7 Financial Statements was Deliberate. 157

8 H. Perry And Keys Make Additional False and Misleading 9 Statements Regarding IndyMac's Credit and Loan Loss Reserves and the Financial Soundness of the Bank 161 10 VIII. DEFENDANTS' FALSE AND MISLEADING STATEMENTS 11 PROXIMATELY CAUSED ECONOMIC LOSS TO INDYMAC'S INVESTORS 165 12 13 A. Defendants' First Partial Disclosure 169

14 B. Defendants' Second Partial Disclosure, Which Was 15 Accompanied by Multiple False and Misleading Statements 176 16 C. The Class Period Ends 180 17 D. IndyMac's Losses Were Not the Result of General Market 18 Conditions and Were Instead the Result of the Concealed Practices 186 19 IX. THE COLLAPSE OF INDYMAC AND OTHER POST-CLASS PERIOD 20 DEVELOPMENTS 187 21 X. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON- 22 THE-MARKET DOCTRINE 188 23 XI. NO STATUTORY SAFE HARBOR 189 24 XII. PRAYER 196 25

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I. INTRODUCTION 1 Lead Plaintiff Robert C. Daniels, individually and on behalf of all other 2 persons or entities who purchased the common stock of IndyMac Bancorp, Inc. 3 ("IndyMac" or the "Company") between March 1, 2007 and May 12, 2008, 4 inclusive (the "Class Period"), alleges the following based upon information and 5 belief, except as to those allegations concerning himself, which are based upon 6 personal knowledge. Plaintiff's information and belief allegations are based upon, 7 among other things: (a) the investigation conducted by and through his attorneys, 8 9 including interviews with numerous former employees of IndyMac's banking 10 subsidiary, some of whom conditioned their cooperation on a promise of 11 anonymity; (b) review and analysis of filings made by IndyMac with the United 12 States Securities and Exchange Commission ("SEC"); (c) review and analysis of data submitted by IndyMac's banking subsidiary to the United States Department 13 of the Treasury's Office of Thrift Supervision ("OTS"); (d) review and analysis of 14 data contained in the Audit Report entitled "Safety and Soundness: Material Loss 15 Review of IndyMac Bank, FSB", dated February 26, 2009, issued by the United 16 States Department of the Treasury's Office of Inspector General ("OIG"), 17 Department of the Treasury (the "Treasury Report" or "OIG Report"); (e) review 18 19 and analysis of press releases, public statements, news articles, securities analysts' 20 reports, statements by government agencies, documents filed in IndyMac's 21 bankruptcy court proceeding, and other publications disseminated by or concerning IndyMac; (f) review and analysis of complaints filed in other litigation involving 22 IndyMac or its subsidiaries; (g) review and analysis of accounting literature and 23 guidance including literature relevant to banking institutions; and (h) other publicly 24 available information about IndyMac. Many of the facts supporting the allegations 25 contained herein are known only to the defendants or are within their control. 26 Plaintiff believes that substantial additional evidentiary support will exist for the 27 allegations set forth in this complaint after a reasonable opportunity for discovery. 28

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II. OVERVIEW OF THE CASE 1 1. IndyMac was the holding company for IndyMac Bank, F.S.B. 2 "IndyMac Bank," the "Bank," or, collectively, "IndyMac"), formerly one of the 3 ( ten largest residential mortgage originators and servicers in the United States. The 4 Bank accounted for substantially all of the Company's assets and revenue. The 5 Bank and IndyMac were essentially synonymous because the Bank was the only 6 material operating entity of the holding company. During the Class Period, 7 8 IndyMac stock lost over 90% of its market value, falling from a Class Period high 9 of $37.50 per share on June 6, 2007, to $2.32 per share at the close of trading on 10 May 13, 2008. On July 11, 2008, in part due to gross capital inadequacy, liquidity 11 concerns, and extremely poor asset quality, the OTS seized IndyMac. The 12 collapse of the Bank was, at the time, the second largest failure of a thrift banking institution in United States history, the largest failure of any bank in 24 years, and 13 has so far cost the FDIC about $12.75 billion — one-tenth of its insurance fund — to 14 cover IndyMac Bank's deposits. IndyMac, the parent of IndyMac Bank, declared 15 bankruptcy on July 31, 2008, and IndyMac and IndyMac Bank and their principal 16 officers are currently the targets or subjects of investigations by the FBI, Federal 17 18 Deposit Insurance Corporation ("FDIC"), SEC, and a federal grand jury in Los 19 Angeles. 2. The reasons for the Bank's collapse have now become evident: it 20 underwrote, originated and sold poor-quality, risk-laden mortgages, and used 21 "brokered deposits" to fund rapid and irresponsible growth. As The Economist 22 aptly put it in an article dated January 8, 2009: "What remains of IndyMac's 23 franchise is of questionable value, to put it charitably. It loaded up on dodgy 24 mortgages, and most of its deposits were of the unstable brokered sort (today it 25 has a mere $6.5 billion)." 26 3. As numerous witnesses, independent reports, and news articles have 27 28 documented, IndyMac was managed and operated with a singular focus: originate

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1 as many loans as possible in disregard of quality or underwriting standards, and when deemed necessary, alter internal reports to hide known problems with loan 2 originations. IndyMac was able to hide the perils it faced due to these reckless 3 and unsafe practices as long as home values rose and few losses were caused by 4 defaults because homeowners could refinance or sell their homes. And, due to the 5 rise of complex mortgage-backed securities, IndyMac did not retain most of the 6 direct risk posed by the loans it originated and underwrote prior to and during the 7 first portion of the Class Period. The situation changed in the second half of 2007, 8 9 when home prices dropped, credit markets froze, and IndyMac was no longer able to sell or securitize mortgages. Suddenly, IndyMac was left holding the low- 10 11 quality and highly risky mortgages that it had originated and underwritten, and was subject to repurchase demands by those to whom it had previously sold its 12 mortgages and derivative debt securities, creating enormous losses and acute 13 capital inadequacies. As Jason Arnold of RBC Capital Markets observed: "The 14 pure underlying factor that made the house fall down was that it was predicated on 15 the view that home prices would continue to rise perpetually. When that didn't 16 work out was when the cracks started to emerge." 17 A. The Treasury Report 18 4. Additional information concerning IndyMac's reckless and fraudulent 19 practices came to light on February 26, 2009, when the OIG issued the Treasury 20 Report. The Treasury Report is based on four months of investigative fieldwork, 21 which included interviews with OTS, FDIC, and IndyMac Bank employees 22 (including current and former members of IndyMac's Enterprise Risk 23 Management Division and internal audit department), review of OTS supervisory 24 files and records for IndyMac dating back to 2000, and review of IndyMac Bank 25 documents that had been obtained by the FDIC. 26 5. The OIG concluded that the Bank: (1) had institutionalized unsound 27 loan underwriting practices; (2) lacked stable core deposits and relied excessively 28

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1 on brokered deposits; and (3) had grossly inadequate loan loss reserves. Significantly, all of these violations of safe and sound banking practices resulted 2 from key decisions made by defendants Michael W. Perry ("Perry") and A. Scott 3 Keys ("Keys"), and were known by defendant Ernst & Young LLP ("Ernst") 4 (collectively, "Defendants"), and none of these violations were adequately 5 disclosed to the investing public. Indeed, the Treasury Report reveals that in April 6 2008 — at the same time that Defendants were engaging in the wrongful course of 7 conduct alleged herein — an OTS examiner recommended that OTS (a regulatory 8 9 agency with limited resources and no obligation to IndyMac's shareholders) 10 "should publicly disclose IndyMac's poor earnings position to prevent any 11 liability to investors who had the potential to lose money should the institution fail." 12 6. Also as set forth in the Treasury Report, in March 2008, a FDIC 13 liquidity analysis showed "the Bank needed up to $3.5 billion in additional 14 capital to avoid failing. " Defendants were all aware that the Bank needed to raise 15 massive amounts of capital in order to survive, and that raising such enormous 16 amounts was virtually impossible. 17 B. The Trustee Complaint 18 7. On November 13, 2009, IndyMac's Chapter 7 Bankruptcy Trustee 19 filed a complaint against former IndyMac directors, including Perry, captioned 20 Alfred H. Siegel, Chapter 7 Trustee of the Estate of IndyMac Bancorp, Inc. Debtor 21 v. Louis E. Caldera, et al., adversary proceeding 2-09-02645-BB (C. D. Cal. 22 Bankr. Ct. 2009) (Blueblood, J.) (the "Trustee Complaint"). The Trustee 23 Complaint, which is based upon, among other things, non-public data and 24 documents regarding IndyMac, including documents submitted by IndyMac to the 25 OTS, presents graphic details showing that prior to and during the Class Period, 26 Defendants recognized IndyMac's perilous and rapidly deteriorating financial 27 condition, and knew that IndyMac would not survive absent a massive outside 28

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1 investment, which was highly unlikely, if not impossible. For example, the 2 following late 2007 and early 2008 facts and communications set forth in the Trustee Complaint all establish Defendants' knowledge of IndyMac's dire 3 financial condition during the Class Period: 4 a) On September 5, 2007, one of IndyMac's directors e-mailed 5 senior management regarding a recent analysis by Moody. That director stated that 6 Moody's "estimates are alarming" and "it appears that we are drastically under- ? estimating our losses. " Trustee Complaint ¶ 228. 8 b) As early as November 2007, the OTS recommended to senior 9 10 management that, based on the Bank's capital ratios, IndyMac needed to raise 11 significant outside capital. Id. ¶ 137(b). c) Also, by November 2007, senior management became aware 12 that OTS intended to downgrade IndyMac's composite CAMELS rating from a 13 "2" to a "32" In accordance with OTS's enforcement guidance, there is the 14 presumption that formal enforcement action will be taken for an institution with a 15 composite rating of "32" Thus, no later than November 2007, both Perry and 16 Keys were aware of IndyMac's precarious position, and any statements to the 17 contrary were false and misleading. Id. ¶ 137(b). 18 d) Significantly, the Trustee Complaint confirms that IndyMac 19 was not merely a victim of market conditions. On October 22, 2007, Perry 20 admitted that: "roughly 213rds of our credit losses were poor management 21 judgment not the market. "Id. ¶ 231. 22 e) January 9, 2008 IndyMac Board minutes — which Ernst was 23 required to review -- memorialize a discussion among IndyMac directors, 24 including Perry, on capital raising and the risk of a run on the Bank in which 25 Perry warns that IndyMac cannot count on raising any capital due, in part, to the 26 poor market performance of IndyMac's stock. Id. ¶ 74(a). 27

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f) On or around February 8, 2008, Perry described IndyMac to an 1 outside investor as "literally fighting for" its life. Id. ¶ 74(b). 2 g) Also on February 8, 2008, IndyMac's senior management told 3 the Board that there was "a very real risk that the OTS could soon pressure the 4 Bank to raise dilutive capital. "Id. ¶ 137(c). 5 h) Incredibly, on February 12, 2008, just four days after the 6 February 8 statements, Perry and Keys told investors that IndyMac was in a 7 `fundamentally sound financial condition." 8 C. The FDIC Complaint 9 8. On July 2, 2010, the FDIC filed a lawsuit against four former 10 11 IndyMac officers who headed the Company's Homebuilder Division ("HBD"). The case is captioned: Federal Deposit Insurance Corporation, as Receiver for 12 IndyMac Bank, F.S.B. v. Scott Van Dellen, Richard Koon, Kenneth Shellem, and 13 William Rothman, 10-cv-4915 (C.D. Cal. July 2, 2010) (the "FDIC Complaint"). 14 The FDIC Complaint — which is the first case the FDIC filed against any of the 15 banks that failed during the subprime crisis -- details the abusive underwriting and 16 lending practices of the Homebuilder Division and alleges that IndyMac's losses on 17 HBD's portfolio "are estimated to exceed at least $500 million." FDIC Complaint 18 5. 19 ¶ 9. In the FDIC Complaint, Perry is described as having hands-on, 20 detailed knowledge of the deteriorating housing market and other specific risks 21 facing the Homebuilder Division and IndyMac in general during the 2006-2008 22 time period. For example, the FDIC Complaint details the facts demonstrating 23 IndyMac upper management's knowledge that: 24 a) "HBD followed a high risk underwriting strategy," and that 25 '11131)'11131)ignored regulatory guidance in its underwriting as much as it ignored its 26 own credit policies." In fact, the FDIC alleges that "less than 1% of the loans 27

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1 approved by HBD were approved without a credit policy exception." FDIC Complaint ¶ 44. 2 b) "HBD's consideration of loan applications was superficial and 3 hasty," as exemplified by Perry's so-called "Flamingo Rule," requiring employees 4 seeking to discuss loans to "quickly present the issue (in the amount of time you 5 can `stand on one leg!"'). Id. ¶ 54. 6 c) HBD's "credit risk matrix," purportedly designed to determine 7 the acceptability of a borrower's credit, "was little more than window dressing for 8 9 what in reality were very risky and poorly managed underwriting practices." Id. ¶¶ 56-60. 10 d) HBD's compensation of its account officers rewarded risk 11 taking and encouraged production without regard for loan quality. Id. ¶¶ 61-64. 12 e) At the time of IndyMac's seizure, "HBD's high risk growth 13 strategy and careless underwriting" resulted in "only a handful of performing loans 14 out of roughly 220 loans in HBD's portfolio." Id. T 67. 15 10. As alleged in the FDIC Complaint, at least by early 2008, "IndyMac's 16 upper management discussed serious problems in HBD[.]" For example, 17 IndyMac commissioned an internal report of the Homebuilder Division in early 18 19 2008, which concluded that loans in this Division were riddled with problems, and that the weaknesses in the loans "were present at the origination of these deals. I 20 don't think I'm using hindsight here." The FDIC Complaint alleges that Perry 21 received and reviewed this internal report. Id. ¶¶ 65-66. 22 11. As demonstrated below, Defendants Perry and Keys were in 23 possession of this adverse information at the very same time that Perry made 24 repeated public statements touting the success and prospects of the Company and 25 the Homebuilder Division to IndyMac's shareholders. 26

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D. The SEC Complaints 1 12. On February 11, 2011, the SEC filed a complaint against Perry and 2 Keys charging them with, inter alia, violating Section 10(b) of the Exchange Act 3 and Rule lOb-5, by issuing false and misleading statements about the financial 4 stability of IndyMac and its main subsidiary, IndyMac Bank, in SEC filings and in 5 offering documents for $100 million in new stock sales, despite receiving regular 6 internal reports in 2007 and 2008 about IndyMac's deteriorating capital and 7 liquidity positions. Securities and Exchange Commission v. Perry and Keys, Case 8 9 No. 11-cv-01309-GHK (C.D. Cal. Feb. 11, 2011) (the "SEC Complaint"). 13. The SEC stated in a press release issued on the same date that Perry 10 11 and Keys "`made false and misleading disclosures about IndyMac at a time when 12 the company's financial condition was rapidly deteriorating. Truthful and accurate disclosure to investors is particularly critical during a time of crisis, and the federal 13 securities laws do not become optional when the news is negative,' said Lorin L. 14 Reisner, Deputy Director of the SEC's Division of Enforcement." 15 14. The SEC Complaint provides the following new evidence showing 16 that in 2007 and 2008, Perry and Keys knew the depth of IndyMac's deteriorating 17 financial condition. 18 • E-mails between Perry and Keys on February 19, 2008, show that 19 they understood that the Bank was precariously close to or was certain to fall 20 below the 10% well-capitalized ratio by March 31, 2008. These e-mails, and a 21 phone call with an OTS official on February 26, 2008, further show that 22 Defendants knew IndyMac was able to maintain the 10% threshold only by 23 changing the traditional method of calculating the ratio. This change was not 24 disclosed to investors. SEC Complaint ¶¶ 19, 46-471. 25

26 1 Capital ratio is a key regulatory metric of a bank's safety and soundness (the "C" in the CAMELS factors, which measure bank safety and soundness), and, in 27 particular, the bank's total risk-based capital ratio (the "capital ratio"). The capital 28

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• On February 26, 2008, Defendants began to raise $100 million by 1 selling IndyMac common stock through IndyMac's Direct Shareholder 2 Purchase Plan ("DSPP") by means of a series of prospectuses, in which they 3 represented that the offerings were for "general corporate purposes." In fact, the 4 true purpose was to raise new capital to maintain the Bank's 10% well- s capitalized threshold and to permit IndyMac to pay preferred dividends in 6 future quarters. SEC Complaint ¶¶ 19, 20. 7 • Defendants Perry and Keys regularly received reports and information 8 about Indymac and the Bank's capital and liquidity position, including frequent 9 forecasts of the Bank's capital ratio, by e-mail and in meetings, and in reports 10 on capital raising through IndyMac's DSPP, and were well aware of IndyMac's 11 deteriorating capital and liquidity position. SEC Complaint ¶¶ 5, 13, 51. In his 12 Answer to the SEC Complaint filed April 15, 2011 ("Keys Answer"), Keys 13 admitted that "as CFO, he supervised the departments that forecast financial 14 results and that he received frequent forecasts of the Bank's capital ratio" (Keys 15 Answer at ¶ 13), and further admitted that "he was aware of Indymac's capital 16 and liquidity positions and regularly received updated forecasts for Indymac 17 Bank's capital ratio, reports on capital raising through DSPP, and information 18 on events such as downgrades onM BS bonds held by Indymac Bank." Id. at ¶ 19 51. Keys further admitted that as CFO, he participated in the filing of 20 IndyMac's periodic reports and stock offering disclosures, that he received 21

22 (... cont'd) 23 ratio is computed by dividing a thrift's total risk-based capital (e.g. shareholder 24 equity) by total risk-weighted assets, such that the greater the presumed risk of an asset, the greater the "risk-weighting" and the reserved capital needed to support 25 the asset. SEC Complaint ¶ 11. A bank's risk-based capital ratio must be 10% or 26 greater for the bank to be considered "well-capitalized." As described herein, IndyMac would suffer severe regulatory consequences if its capital ratio fell below 27 the 10% threshold, including, inter alia, an inability to accept deposits. 28

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information regarding the financial condition of both IndyMac Bancorp and 1 IndyMac Bank while he was the acting CFO until April 24, 2008, and that he 2 received information showing that their financial condition was deteriorating. 3 Id. at ¶ 5. In his Answer to the SEC Complaint on April 15, 2011 ("Perry 4 Answer"), Defendant Perry admitted that "as CEO, he sought and received 5 information concerning the financial condition of IndyMac and the Bank." 6 Perry Answer at ¶ 13. The SEC alleges that despite being well-informed about 7 IndyMac's financial condition and being responsible for IndyMac's financial 8 reporting, Perry and Keys knowingly or recklessly failed to disclose the extent 9 of IndyMac's deteriorating capital and liquidity positions in IndyMac's filings, 10 and in prospectuses in 2008, which incorporated false statements about 11 IndyMac's capital levels and liquidity. Id. ¶ 51. 12 • Facts alleged in the SEC Complaint against S. Blair Abernathy (who 13 succeeded Keys as IndyMac's CFO) (the "Abernathy Complaint") 2, provide 14 further evidence that IndyMac's loans were based on fraudulent underwriting, 15 and that Defendants knew this because they received or had access to internal 16 monthly reports issued by IndyMac Bank's Post Production Quality Control 17 ("PPQC") department. The PPQC monthly reports, based on a statistically 18 valid random sample of the Bank's total loan production, identified pervasive 19 systemic defects in IndyMac's underwriting process, and were distributed 20 throughout the Company by e-mail and posted on IndyMac's intranet site. 21 Abernathy Complaint ¶¶ 16-20. 22

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26 2 Securities and Exchan e Commission v. Abernathy, Case No. 11-cv-01308-JFW 27 (C.D. Cal. Feb. 11, 2011.

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1. The Undisclosed Change in IndyMac's Capital Ratio 1 Calculation 2 15. The SEC Complaint alleges that on February 19, 2008, Keys 3 informed Perry and other IndyMac executives that a significant one-day rise in 4 interest rates caused IndyMac Bank's forecasted capital ratio at March 31, 2008 to 5 be at or slightly under 10%. SEC Complaint ¶ 19. In their Answers, Perry and 6 Keys do not deny that this conversation took place. Perry and Keys Answers at ¶ 7 8 19. The SEC further alleges that in response, Perry sent Keys and other IndyMac 9 executives an e-mail stating that IndyMac would sell stock to investors to raise up 10 to $50 million through the DSPP for two purposes: to keep the Bank's capital ratio 11 above 10% and to maintain the preferred dividend payment. Id. 16. Also in a February 19, 2008 e-mail, which both Defendants concede 12 was sent (Perry and Keys Answers at ¶ 46), Perry informed Keys and other 13 IndyMac executives that he wanted to change the way to calculate IndyMac's 14 capital ratio in order to keep the Bank's capital ratio above 10% at March 31, 2008. 15 SEC Complaint ¶ 46. In that e-mail, Perry explained that he would seek waiver of 16 certain regulatory requirements for calculating the capital ratio, including the 17 requirement that subprime loans be double risk-weighted as compared to non- 18 19 subprime loans. SEC Complaint and Keys Answer at ¶ 46. Perry sought relief from the double risk-based requirement so that IndyMac would require less capital 20 to support its subprime loan holdings and thereby improve IndyMac Bank's capital 21 ratio. Perry and Keys purportedly obtained this weighting relief during a telephone 22 call with an OTS official on February 26, 2008. Without this change in the way 23 IndyMac calculated its capital ratio, the Bank's risk-based capital at March 31 24 would have fallen below the 10% well-capitalized level. Id. ¶¶ 46-48. Investors 25 were not informed of the material fact that the Bank was only able to maintain its 26 well-capitalized ratio at March 31 by changing the calculation methodology. Id. at 27 ¶ 47. 28

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2. IndyMac's Fraudulent DSPP Sales 1 17. On February 26, 2008, IndyMac began selling its common shares 2 through the DSPP pursuant to a June 30, 2006 Form S-3 automatic shelf 3 4 registration statement and an October 11, 2007 prospectus. Defendants Perry and Keys signed IndyMac's June 30, 2006 Form S-3. SEC Complaint ¶ 20. As a 5 member of IndyMac's board of directors, Perry had authorized the offer and sale of 6 stock through the October 11 DSPP prospectus, and the subsequent DSPP 7 prospectuses, and Keys, as CFO, authorized the filing of the October 11 prospectus 8 9 and subsequent prospectuses until his departure from the Company in April 2008. Id. ¶¶ 20, 31, 56. The prospectuses for those stock sales represented that the 10 11 proceeds would be used for "general corporate purposes." This was false. Item 504 of Regulation S-K of the Securities Act, requires a prospectus to disclose the 12 principal purposes for which the net proceeds from the securities to be offered are 13 14 intended to be used and the approximate amount intended to be used for each such purpose. Id. ¶ 20. IndyMac's DSPP prospectuses were not updated nor amended 15 as they should have been to disclose that the true (but undisclosed) purpose of the 16 offering was to preserve IndyMac Bank's 10% well-capitalized ratio, and to pay 17 future preferred dividends to IndyMac shareholders. Id. ¶¶ 19-22. The DSPP 18 19 prospectuses also incorporated by reference the false statements about IndyMac's strong capital and liquidity in the 2007 8-K and/or 10-K. ¶¶ 22, 26, 32, 40, 41. 20 18. IndyMac's 2007 Form 10-K filed on February 29, 2008, signed by 21 Perry and Keys and incorporated into the DSPP prospectuses for sales of IndyMac 22 stock, represented that IndyMac had "strong capital and liquidity positions," that 23 the Bank "currently [has] regulatory capital ratios in excess of the `well 24 capitalized' requirement," and that IndyMac "may" be required to raise outside 25 capital from investors at terms adverse to existing investors. These representations 26 were all false. In truth, Perry and Keys knew that the Bank's capital and liquidity 27 had already deteriorated dangerously; they knew that the Bank was on the brink of 28

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losing its "well-capitalized" status unless they changed the method of calculating 1 the capital ratio; and they knew that IndyMac had already been forced to begin 2 raising capital to bolster the ratio. Id. ¶T 24-27, 46-47. 3 3. Perry Authorizes IndyMac's Backdated Capital 4 Contribution 5 19. On March 20, 2008, Keys recommended to Perry that IndyMac (the 6 Holding Company) contribute $75 million to IndyMac Bank on March 31, 2008, 7 for the principal purpose of protecting IndyMac Bank's capital ratio, even though 8 9 Perry and Keys knew that IndyMac would be left with only $16 million in cash. 10 Perry and Keys finally agreed to reduce IndyMac's capital contribution to $70 11 million after IndyMac's treasurer raised concerns about the parent's dwindling cash, leaving IndyMac with $21 million in cash, only enough to pay three quarters 12 of preferred dividends without raising additional capital. Id. ¶¶ 29, 30. The $70 13 million contribution, which further depleted Bancorp's funds, was recorded on 14 March 31, 2008. Id. ¶ 30. 15 20. Perry instigated the "backdating" of an additional capital contribution 16 from IndyMac Bancorp to the Bank in order to maintain the Bank's 10% well- 17 capitalized ratio for the quarter ended March 31, 2008. On May 9, 2008, Perry 18 19 authorized IndyMac to contribute to. IndyMac Bank $18 million and to record the 20 $18 million contribution as if it had occurred on March 31, 2008. The original draft of IndyMac's Form 8-K announcing first quarter 2008 earnings on May 12, 21 2008 contained the accurate statement that IndyMac contributed $70 million to 22 IndyMac Bank on March 31, 2008, and another $18 million on May 9, 2008. Perry 23 was actively involved in changing the draft 8-K from the accurate statement to 24 make it appear that all $88 million was contributed by March 31, 2008. This 25 change was made specifically and solely to conceal the backdating. Id. ¶ 53. 26

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E. Defendants' False and Misleading Statements 1 21. Notwithstanding these fundamental weaknesses, IndyMac, Perry, and 2 Keys made a variety of false positive statements to investors regarding IndyMac's 3 financial condition in order to raise desperately needed capital, prop up the 4 Company's stock price, and prevent a run on the Bank. For example, on August 5 28, 2007, in a press release announcing the hiring of 600 employees from a failed 6 7 mortgage lender, Perry stated that IndyMac had "weathered the storm," "remain[ed] in a solid financial position," had "limited exposure to the current 8 9 market-related liquidity issues that many other mortgage lenders are experiencing," 10 and would return to profitability in 2008. Throughout the Class Period, 11 Defendants continued to maintain, falsely, that IndyMac employed "strong underwriting guidelines," was a "prudent manager of risks," had "high standards... 12 for credit quality," and had "conservatively built up" and "prudently increase[ed] 13 reserves" "well ahead of credit losses." 14 22. In addition, Ernst issued unqualified opinions on IndyMac's 2006 15 Form 10-K and 2007 Form 10-K, falsely certifying that IndyMac's financials, 16 17 including reported ALL, complied with Generally Accepted Accounting Principles

("GAAP"), and that the Company's internal controls over financial reporting were 18 19 effective. Ernst also publicly stated in each of its opinions that it performed its audits and evaluations in accordance with the standards of the Public Company 20 Accounting Oversight Board ("PCAOB"). As set forth in detail herein, each of 21 these public statements was false when made, as Ernst's audits failed to comply 22 with the standards of the PCAOB and Generally Accepted Auditing Standards 23 ("GAAS") for multiple reasons, and Ernst was aware of numerous facts 24 demonstrating significant internal control deficiencies and material weaknesses at 25 IndyMac at the time it issued its "clean" opinions. 26 23. The false and misleading statements at issue in this case fit into seven 27 general categories: 28

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(a) False Statements Re2ardin Underwriting and Appraisal 1 Standards and Practices: In order to reassure investors about the quality of the 2 3 mortgage portfolio that IndyMac was carrying on its balance sheet, Perry repeatedly touted IndyMac's "strong" and "prudent" underwriting practices, the 4 "superior" credit quality of its loans, and the fact that IndyMac purportedly 5 independently verified appraisals and credit scores. These statements were all 6 materially false and misleading. While the particulars are alleged in more detail 7 below, IndyMac top management's true philosophy and practices are epitomized 8 9 by defendant Perry's own words, reported to have been uttered to other Company 10 employees: "Business guys rule. F*** you to compliance guys." The Treasury 11 Report concluded that among the key causes of IndyMac's failure were its high risk business strategy, aggressive growth, and unsound loan underwriting practices. 12 (b) False Statements Regarding IndyMac's Internal Controls: 13 In order to effectively audit IndyMac's compliance with GAAP and the adequacy 14 of the Company's internal controls, Ernst was required to, but did not, follow 15 applicable PCAOB and GAAS standards in evaluating, inter alia, IndyMac's 16 internal controls, including with respect to its adherence to underwriting 17 guidelines, its reserving methodology, and its accounting for ALL and Secondary 18 19 Market, or "residual" Reserves. Accordingly, Ernst's unqualified opinions on IndyMac's Forms 10-K for 2006 and 2007, falsely certifying that the Company's 20 internal controls over financial reporting were effective, and falsely stating that 21 Ernst performed its audits in compliance with the standards of the PCAOB, were 22 materially false and misleading. Ernst's audits failed to comply with the standards 23 of the PCAOB and GAAS for the reasons set forth herein, and Ernst was aware of 24 numerous facts -- including its own findings of internal control deficiencies in 25 2006, as well as internal audit reports, external audit reports, and OTS examination 26 reports, as well as monthly reports of the Company's total loan production issued 27 by IndyMac Bank's PPQC department on the Company's intranet, which found 28

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1 pervasive and systemic defects in the Bank's underwriting process — all demonstrating serious internal control deficiencies and material weaknesses at 2 IndyMac at the time Ernst issued its "clean" opinions. 3 (c) False Statements Related to IndyMac's Dependence on 4 Brokered Deposits: Perry repeatedly assured investors that IndyMac's deposit 5 base was "stable," that IndyMac had "managed [its deposits] well," and that the 6 risk of deposits leaving the Company was not on "our radar screen of being [a] 7 concern to us." These statements were materially false and misleading: During 8 9 the Class Period, over 37% percent of IndyMac's deposits were brokered deposits, 10 known within the industry as "hot money" because they can and are easily moved 11 to another institution. On June 30, 2008, IndyMac admitted that such deposits were being used for "expediency" purposes only, and that IndyMac had been 12 actively trying to reduce its reliance upon them. The Treasury Report concluded 13 14 that one of the causes of IndyMac's failure was its lack of core, stable deposits, noting that during the period August 2007 through March 2008, its brokered 15 deposits increased from about $1.5 billion to $6.9 billion. 16 (d) False Statements Related to OTS Oversight and IndyMac's 17 Financial Condition After Commencement of the OTS Examination: On 18 19 February 12, 2008, Perry was questioned regarding any actions the OTS had taken in relation to IndyMac. Perry responded that "I think they have complimented us 20 on our nimbleness in terms of our ability to change our business model ... they 21 haven't asked us to do anything ... I feel like they think we're doing a pretty good 22 job managing through this crisis period." Similarly, on February 12, 2008, both 23 Perry and Keys issued a Form 8-K reassuring investors that IndyMac was in a 24 "fundamentally sound financial position." Unknown to the investing public, in 25 January 2008, the OTS initiated an examination of IndyMac four months ahead of 26 schedule based on concerns that IndyMac was not "fundamentally sound." Within 27 ten days of the initiation of that examination, on January 17, 2008, OTS informed 28

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1 IndyMac's Board of Directors (which included Perry) that it was downgrading IndyMac's "Capital Adequacy, Asset Quality, Management Administration, 2 Earnings, Liquidity and Sensitivity" composite ("CAMELS") rating to 3, and 3 lowered the asset quality and earnings component ratings to 4, based on results of 4 off-site monitoring and initial findings of the examination started on January 8, 5 2008. According to OTS's enforcement guidance, this created a presumption that 6 formal enforcement action would be taken against the Bank. In light of Perry's 7 and Keys' actual knowledge of the OTS's actions and serious concerns for the 8 9 viability of IndyMac, their false and misleading representations to the contrary 10 were at the very least deliberately reckless. (e) False Financial Statements and False Statements Regarding 11 IndyMac's Allowances for Loan Loss Reserves: IndyMac issued financial 12 statements for year-end 2006 and throughout the Class Period with allowances for 13 loan losses ("ALLs") that were grossly inadequate. However, IndyMac and the 14 Individual Defendants falsely and repeatedly stated that those reserves were not 15 only adequate and reported in a manner consistent with GAAP, but were in fact 16 "conservative," and that the OTS did not "have concerns about our reserves." 17 These statements were materially false and misleading. As explained below, the 18 19 ratio of reserves to loan assets in IndyMac's financial statements was lower in 2006 than it had been in 2005, even though IndyMac had abandoned its pre- 20 existing underwriting standards and the general economic conditions in the home 21 loan mortgage market had worsened, both of which would necessarily result in 22 increased delinquencies and foreclosures and Secondary Market Reserves. 23 Defendants' egregious violations of GAAP resulted in inadequate loan loss 24 allowances, as well as Secondary Market Reserves for loan products and securities 25 in which it retained a residual interest, which fraudulently inflated net income and 26 earnings per share, and gives rise to a strong inference of scienter. The 27 extraordinary degree to which IndyMac's purportedly "conservative" loan loss 28

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1 allowances were inadequate further confirms that Perry and Keys were deliberately manipulating IndyMac's books and records rather than merely being slow to 2 foresee risks to IndyMac's business. Defendant Ernst fraudulently certified 3 financial statements containing those inadequate ALLs and Secondary Market 4 Reserves. The Treasury Report confirmed that one of the key causes of IndyMac's 5 failure was its grossly inadequate loan loss reserves, noting that IndyMac's ALLs 6 7 actually declined as a percentage of total loans every year from December 31, 2005 to December 31, 2006, even as the Company's loan portfolio was becoming 8 9 riskier, charge-offs and defaults rose, and property values declined. Moreover, 10 Defendants used outdated models to set ALL, which improperly relied on outdated 11 historic assumptions and similarly failed to adjust IndyMac's models for estimating ALL in light of known loosening and, in some cases, the complete 12 abandonment of established underwriting guidelines. As explained below, the 13 credit crisis, which began to engulf the mortgage industry beginning in 2006, and 14 accelerated rapidly in 2007, rendered previous models for calculating ALL 15 irrelevant. Specifically, the collapse of housing prices, lax underwriting and 16 increased offerings of exotic, risky loans by lenders, massively increased borrower 17 defaults and foreclosures, together with the evaporation of the secondary market to 18 19 absorb the toxic loans, meant that historic default rates were no longer suitable bases for calculating ALL, as Defendants either knew or with deliberate 20 recklessness disregarded. Moreover, Defendants received regular reports before 21 and during the Class Period from IndyMac Bank's PPQC department, which 22 described pervasive and systemic defective underwriting of the Bank's loans. As a 23 result, the ALL was either inestimable or insufficient. 24 (f) False Statements About IndyMac's Liquidity and Capital 25 Position: Throughout the Class Period, Defendants Perry and Keys made false 26 statements touting the Company's "strong" liquidity and capital position, and 27 falsely downplayed IndyMac's extremely weak financial condition. Defendants 28

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represented, for example, that IndyMac had "tremendous liquidity," "very strong 1 liquidity," and stated that IndyMac's liquidity risks were as "about as close to none 2 as you could have." Defendants also repeatedly assured investors that the 3 Company "remain[ed] in a fundamentally sound financial position." These 4 statements, and numerous similar statements identified herein, were materially 5 false and misleading. As discussed below, at the time they made these statements 6 specifically touting IndyMac's liquidity, Defendants knew that IndyMac's liquidity 7 was in fact precarious and that the Bank was not "financially sound," but was 8 instead in dire financial condition and faced a very real threat of liquidation. For 9 example, Defendants' statements that the Bank has "strong capital and liquidity 10 positions" and "currently [has] regulatory capital ratios in excess of the `well- 11 capitalized requirement,"' in IndyMac' 2007 Form 10-K filed on February 29, 12 2008, were false and misleading. According to the SEC Complaint, statements by 13 Defendants Perry and Keys after February 19, 2008, including in IndyMac's 2007 14 10-K and a series of prospectuses, about IndyMac Bank's liquidity and capital ratio 15 levels, were false and misleading because they failed to disclose that the Bank 16 could only maintain its 10% well-capitalized ratio at March 31, 2008 by changing 17 the method of calculating that ratio. SEC Complaint ¶¶ 24-25, 46-47. In addition, 18 Defendants' statements in IndyMac's prospectuses for stock offerings through the 19 DSPP that the proceeds would be used for "general corporate purposes" were false 20 and misleading because they failed to disclose that the proceeds would be used 21 principally to protect the 10% ratio, because IndyMac's capital and liquidity were 22 rapidly deteriorating. Id. ¶¶ 20-22. 23 (g) Ernst's Failure to Include a "Going Concern" Reservation 24 in its 2007 Audit Opinion: Ernst was deliberately reckless in failing to include a 25 "Going Concern" reservation in its 2007 audit opinion, issued on February 29, 26 2008. Such a reservation would have stated what Defendants, including Ernst, 27 knew, and investors did not: That there was a significant risk that IndyMac would 28

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1 be unable to meet its obligations over the next few months, and might be forced into liquidation and that, consequently, IndyMac met the conditions for an auditor 2 to include a Going Concern reservation in his/her audit opinion under AU § 341. 3 Specifically, there was "substantial doubt" about IndyMac's ability to continue as a 4 going concern as of February 28, 2008, the date Ernst signed its 2007 audit 5 opinion. One of the indicia that the auditor must consider in determining whether a 6 Going Concern reservation is needed is "failure to meet minimum regulatory 7 capital requirements." 2006 AAG 5.108-118.3 The allegations in the SEC 8 9 Complaint concerning Defendants' efforts beginning on February 19, 2008 to 10 change the methodology used for calculating the Bank's 10% well-capitalized threshold in order to conceal and forestall the Bank's failure are evidence that 11 Ernst — before signing the 2007 10-K on February 28, 2008 — intentionally, or with 12 deliberate recklessness, disregarded the risk that IndyMac could soon fall below 13 the 10% minimum well-capitalized threshold, and confirm that there was 14 substantial doubt that the Bank would survive for a reasonable period of time. 15 However, because of Ernst's failure to include a Going Concern reservation in its 16 2007 opinion, the public did not learn there was a significant risk that IndyMac 17 would be unable to continue as a going concern until May 12, 2008, the close of 18 19 the Class Period, when Perry admitted that IndyMac's "capital ratios clearly have been depleted," and that IndyMac could soon "not be well capitalized." 20 Immediately following this revelation, IndyMac's stock price plummeted 32%. 21 24. Defendants' false and misleading statements were intended to, and 22 did, facilitate IndyMac's efforts to raise the capital it needed to stay solvent for as 23 long as it did, and to prevent a run on its banking subsidiary by the Bank's 24 depositors. IndyMac sold over $700 million of common and preferred stock 25 3 AICPA Audit and Accounting Guide for Depository and Lending Institutions: 26 Banks and Savings Institutions Credit Unions, Finance Companies and Mortgage Companies (with conforming changes as of May 1, 2006) (referred to herein as the 27 2006 AAG or AAG ). 28

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1 during the Class Period and, throughout the Spring of 2008, IndyMac was secretly seeking a private capital infusion (a project known within IndyMac by the code 2 words "Project Ironman"). 3 25. The truth about the adverse condition of IndyMac's mortgage 4 portfolio and financial position began to be partially revealed on November 6, 5 2007, and further revelations were made on May 12, 2008, when the Company 6 announced its results for the first quarter of 2008, admitted that it would not be 7 profitable in 2008, and reported that it suffered a first quarter loss of $184.2 8 9 million (a loss of $2.27 per share) because of writedowns in the value of its assets 10 and increases to reserves. The Company also held an investor conference call on 11 May 12, 2008, in which Perry attributed the massive quarterly loss and the inability to return to profitability to, inter alia, rapidly increasing non-performing assets and 12 loan repurchase demands from secondary market investors, and revealed that as a 13 result, IndyMac would have to establish significant credit reserves for these and 14 forecasted future Non-Performing Assets ("NPAs") and charge-offs. 15 26. IndyMac's losses were directly correlated to IndyMac's reckless loan 16 underwriting and appraisal practices, and revealed the falsity of IndyMac's prior 17 statements regarding the "conservative" nature of its loan loss reserves. 18 27. As a result of these disclosures on May 12, 2008, IndyMac's stock 19 dropped from a close of $3.43 per share on May 9, 2008, to close at $2.32 per 20 share on May 13, 2008 on high volume — a two-day decline of $1.11 per share, or 21 32%, and a 90% drop from its Class Period high of $37.50 per share. 22 III. THE PARTIES AND CRITICAL PLAYERS 23 A. Plaintiff 24 28. Plaintiff Daniels purchased the common stock of IndyMac during the 25 Class Period as detailed in the certification filed with Daniels' original complaint, 26 has not sold those shares, which are now worthless, and has suffered injury and 27 damages as a result of the wrongful acts of Defendants as alleged herein. 28

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B. The Holding Company and the Bank 1 29. Non-party IndyMac was a savings and loan holding company for 2 wholly-owned subsidiaries and majority-owned subsidiaries, including its principal 3 asset IndyMac Bank, F.S.B, its only material operating subsidiary. IndyMac is a 4 Delaware corporation whose principal executive offices were located at 888 East 5 Walnut Street, Pasadena, California 91101-7211. During the Class Period, 6 IndyMac's common stock traded on the New York Stock Exchange under the 7 symbols NDE (until April 30, 2007) and IMB (effective May 1, 2007). As of 8 9 May 6, 2008, 100,888,890 shares of IndyMac common stock were issued and 10 outstanding. On July 31, 2008, IndyMac filed a petition for bankruptcy relief 11 seeking liquidation under Chapter 7 in the United States Bankruptcy Court for the Central District of California. But for its bankruptcy, IndyMac would have been 12 named as a defendant herein. 13 30. Non-party IndyMac Bank was a hybrid thrift/mortgage bank 14 headquartered in Pasadena, California. IndyMac Bank originated mortgages in all 15 50 States of the United States and, as of February 2008, was (1) the largest savings 16 and loan headquartered in Los Angeles County, California, and the seventh largest 17 nationwide, based on its reported assets; (2) the second largest independent 18 19 mortgage lender in the nation; (3) the ninth largest residential mortgage originator, based on third quarter 2007 mortgage origination volume; and (4) the eighth 20 largest mortgage servicer. The OTS closed IndyMac Bank on July 11, 2008, and 21 appointed the FDIC as receiver. On the same date, the OTS chartered a new 22 institution, IndyMac Federal Bank, FSB, appointed the FDIC as conservator of 23 IndyMac Bank, and transferred substantially all of IndyMac's assets and certain 24 liabilities to a new corporate entity, IndyMac Federal Bank. But for its liquidation, 25 the Bank would have been named as a defendant herein. 26

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C. Defendants 1 1. Officers 2 31. Defendant Perry was Chairman of the Board, a director and Chief 3 Executive Officer ("CEO") of IndyMac and IndyMac Bank. 4 32. Defendant Perry joined IndyMac in January 1993 having previously 5 had over 20 years of business experience with mortgage banking companies, 6 financial institutions and real estate firms, including four years as an auditor with 7 KPMG Peat Marwick. He is also a Master Certified Mortgage Banker, as 8 9 designated by the Mortgage Bankers Association, and a Certified Public 10 Accountant. Perry made and participated in the issuance of improper statements, 11 including the preparation of the improper press releases and SEC filings. He was the public face of the Company. Perry signed each of the Company's quarterly 12 reports on Form 10-Qs issued during the Class Period, and the Company's Form 13 10-Ks for the years ended December 31, 2006 and 2007, respectively. As reported 14 in the Company's latest proxy statement, on its Schedule 14A filed with the SEC 15 on March 24, 2008 ("the 2008 Proxy"), defendant Perry had "responsibility for the 16 day-to-day operations of IndyMac [since] 1993." Perry's responsibilities are 17 described in the 2008 Proxy as follows: 18 As the Company's Chairman and Chief Executive Officer, Mr. Perry is 19 responsible for the overall direction and administration of all programs 20 and services provided by the Company and for ensuring that all aspects 21 of the Company's activities are conducted commensurate with the best 22 interests of shareholders, customers, employees, and other key 23 stakeholders. His responsibilities include: (i) setting the strategic vision 24 and establishing a strategic, financial and risk management plan for the 25 Company, (ii) recruiting and retaining a senior management team which 26 has the talent and experience to execute the plan, (iii) monitoring the 27 Company's execution, financial and operating performance, (iv) 28

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adapting the Company's strategic and execution plans based on 1 Company performance and conditions in the mortgage market and U.S. 2 economy, and (v) managing all key activities related to IndyMac's 3 being a public corporation. He reports to the Board of Directors as the 4 highest ranking official of the Company. Based on his broad 5 responsibilities, Mr. Perry is the only Named Executive Officer of the 6 Company whose short-term cash incentive compensation is based 7 solely on the year over year EPS growth rate of the company. 8 Mr. Perry's responsibilities, as described above, are significantly 9 10 broader than any other Named Executive Officer at the Company. 33. As alleged in the SEC Complaint, Perry knew about IndyMac's 11 deteriorating liquidity and capital positions because he received regular internal 12 reports about IndyMac's liquidity, capital raising needs and activities, and capital 13 ratio, a key regulatory metric of a bank's safety and soundness. Perry received 14 frequent forecasts of the Bank's capital ratio by e-mail and in meetings, and 15 information on material events such as downgrades on MBS bonds held by 16 IndyMac Bank. Perry also received regular reports on capital raising through the 17 Company's DSPP. SEC Complaint ¶ 13, 51. Perry was well informed of 18 19 IndyMac's financial condition and was an integral participant in IndyMac's financial reporting process. Id. at ¶ 51. For example, Perry participated in drafting 20 exhibits to the Q1 earnings 8-K filed on May 12, 2008, and changed the language 21 to conceal the backdating of capital contributions to IndyMac Bank. Perry 22 changed the accurate statement that IndyMac "contributed $70 million 23 to.... [IndyMac] Bank during Q1 08 and another $[18] million on May 9th to 24 falsely state that IndyMac "contributed $88 million to the Bank during Q1 08". Id. 25 at ¶ 53. 26 34. Moreover, according to witnesses, news articles, and as alleged in 27 greater detail below, Perry was a "hands-on-manager" who sometimes personally 28

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1 reviewed mortgage applications, and was well aware of IndyMac's fraudulent and improper mortgage origination practices. In a special report on IndyMac dated 2 September 15, 2008, and titled "IndyMac's Last Gasps," the Los Angeles Business 3 4 .Journal described, based on a review of internal IndyMac documents and employee interviews, Perry's hands-on-management-role as so extreme as to 5 amount to "a sort of corporate dictatorship." According to the article "Perry's 6 fingerprints were all over IndyMac, all the way down to a multipart, SAT-style test 7 that employees had to pass before being hired." Employees "painted a detailed 8 9 picture of a Company colored by an aggressive and sometimes boorish Chief 10 Executive who created a corporate culture that gave the Company little chance of 11 surviving a major market downturn." Perry reviewed and had access to numerous reports before and during the Class Period which revealed the extent of the 12 Company's deteriorating financial condition and utter abandonment of loan 13 underwriting standards, and signed the Company's financial statements and 14 Sarbanes-Oxley Act certifications, as alleged below. 15 35. During the Class Period, Perry was paid a portion of his compensation 16 in the form of IndyMac stock, a fact which he touted to investors in a comment on 17 the Company's "IMB Report" blog, on November 29, 2007. Perry also used his 18 19 own purchases of IndyMac stock as a way to support his statements to the public that IndyMac had "turned the corner." On that occasion, Perry responded to an 20 IndyMac shareholder's suggestion that "insider buying" at what were claimed to be 21 then depressed stock price levels would send a strong message to the market about 22 the viability of IndyMac. In his response, Perry stated he agreed with the 23 shareholder and committed to purchasing additional shares as soon as the window 24 for insiders to trade opened, which would occur once 4th quarter earnings were 25 released in late January 2008. 26 36. Under pressure to keep to his public promise, and in an effort to 27 bolster confidence in IndyMac while IndyMac was actively seeking a major capital 28

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1 infusion or find a buyer, a deferred compensation plan trust of which Perry was the beneficiary acquired 328,988 shares of IndyMac stock on February 15, 2008, at the 2 market price of $7.93 per share. Under IndyMac's deferred compensation plan, 3 executives may elect to invest balances in IndyMac common stock or in a cash 4 fund. According to IndyMac's 2008 shareholders' proxy statement, the 5 investments vest over a period of three to five years. The February 2008 purchase 6 was made with a long-term cash incentive grant made in 2007 and awarded to him 7 in March 2008 with a "target value" of $2,812,966. Also in March 2008, Perry 8 9 was paid a short-term cash incentive grant with a "target value" of $3,429,288. 10 Thus, in making the February 2008 purchase, Perry was using unvested deferred 11 compensation plan funds derived from IndyMac. 37. In addition, the total purchase amount was a very small expenditure 12 relative to the amount of money Perry had earned from prior sales of IndyMac 13 stock and the value of Perry's total stock holdings. Specifically, Perry reaped over 14 $32 million dollars by selling IndyMac stock during the period from 2003 to 2007, 15 and his salary and non-equity compensation in 2006 totaled $4,086,779. 16 38. Perry and other top executives and directors were required to own and 17 refrain from selling IndyMac stock in accordance with certain Company 18 19 requirements. Under IndyMac's "Stock Ownership Guidelines," IndyMac's CEO, "whose tenure now exceeds five years," was "expected to own common stock 20 (including 70 percent of the net value of vested stock options) with a value equal to 21 five times his annual salary." All other IndyMac executive officers with tenure of 22 more than three years were expected to own certain minimum amounts of common 23 stock with values equal to certain multiples of their salary. According to 24 IndyMac's Proxy: "Currently [as of March 24, 2008], due to the current market 25 conditions... all of the NEOs [named executive officers] and 6 of the 9 non- 26 employee directors are out of compliance with the ownership requirements and 27 will refrain from selling IndyMac stock until such time as they are in compliance." 28

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1 Thus, Perry's February 2008 purchase helped to bring him in compliance with Company guidelines. 2 39. Defendant Keys was, at all relevant times, Executive Vice President 3 and Chief Financial Officer ("CFO") of IndyMac, until April 25, 2008, when he 4 took a leave of absence. As the Company's Executive Vice President and Chief 5 Financial Officer, Keys had direct responsibility for the content of IndyMac's 6 public financial statements and reports. Keys participated in the making of false 7 and misleading statements, including the preparation of the improper press releases 8 9 and SEC filings prior to his departure on April 25, 2008. Defendant Keys signed 10 the Company's quarterly reports on Form 10-Qs issued during the Class Period 11 prior to April 25, 2008, and the Company's annual report on Form 10-Ks for the years 2006 and 2007. 12 40. As described in the SEC Complaint, Keys, as the CFO, was 13 responsible for supervising IndyMac's financial reporting department. He received 14 and reviewed multiple versions of the 2007 Form 10-K, including a review with 15 the audit committee of IndyMac's board of directors prior to the filing of the 16 annual report on February 29, 2008. SEC Complaint T 54. As the CFO, Keys 17 supervised the two IndyMac departments that forecasted IndyMac's financial 18 19 results, including IndyMac Bank's capital ratio, and received regular reports on capital raising through the DSPP, and information on material events, such as 20 downgrades on NIBS bonds held by IndyMac Bank. Keys, like Perry, received 21 frequent forecasts of the Bank's capital ratio by e-mail and in meetings. Id. ¶¶ 13, 22 51. Keys also supervised IndyMac's investor relations department, which managed 23 IndyMac's DSPP. Id. ¶ 13. Thus, Keys, like Perry, was well informed of 24 IndyMac's financial condition and was an integral participant in IndyMac's 25 financial reporting process. Id. ¶ 51. In his Answer, Keys concedes that as CFO 26 he participated in the filing of IndyMac's periodic reports, that he received 27 information about the financial condition of IndyMac and the Bank, which showed 28

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1 that the financial condition of both were deteriorating, that he received frequent forecasts of the Bank's capital ratio and capital raised through the DSPP, and that 2 he was aware of IndyMac's capital and liquidity positions. Keys Answer at ¶¶ 5, 3 13, 51. 4 41. Keys also signed Sarbanes-Oxley Act certifications accompanying 5 each of those reports. In those certifications, Keys represented that he was 6 "responsible for IndyMac's establishing and maintaining disclosure controls and 7 procedures and internal control over financial reporting," and that he had designed 8 9 IndyMac's internal controls to ensure that all material issues were brought to his attention. 10 42. Mr. Keys' wide-ranging responsibilities at IndyMac were detailed in 11 the Company's 2007 proxy statement: 12 As the Company's Chief Financial Officer, Mr. Keys has goals that are 13 milestone based, rather than revenue based.... Those goals include:... 14 the maintenance of a strong, effective, and automated financial 15 reporting control environment, including the timely resolution of any 16 financial reporting control/deficiencies discovered by Mr. Keys, other 17 members of IndyMac management, Internal Audit, and the Company's 18 independent registered public accounting firm, Ernst & Young, LLP. 19 This includes policies and procedures for all his areas of responsibility, 20 especially external and internal financial reporting. 21 Thus, defendant Keys reviewed and had access to all reports before and during the 22 Class Period that revealed the extent of the Company's deteriorating financial 23 condition and financial reporting and control deficiencies. 24 43. Prior to joining IndyMac in 2002, Keys had been a partner at Ernst, 25 serving as partner in charge of Ernst's Ohio Valley banking practice. According to 26 IndyMac's press release, "[Keys] specialized in the financial services industry and 27 was one of Ernst & Young's top experts in mortgage banking and asset 28

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1 securitization." From his work as an accountant within the banking practice, Keys was thoroughly knowledgeable of the need to understand all aspects of a business 2 in order to prepare materially accurate financial statements. In particular, Keys' 3 experience as both an accountant and chief financial officer for banks made him 4 aware of the centrality of accurate calculation of ALL to the accuracy of financial 5 statements of a bank and bank holding company. 6 44. Keys' compensation was also tied to the performance (or, more 7 accurately, publicly reported performance) of the Company. Keys' total 8 compensation for 2007 was $1,274,658, which included $542,875 in salary, and 9 10 $312,500 in short term cash incentive compensation and $370,094 long-term 11 incentive compensation. 45. During the Class Period, Perry and Keys, as senior executive officers 12 and directors of IndyMac, were privy to non-public information concerning the 13 Company's business, finances, products, markets and present and future business 14 prospects via access to internal corporate documents, conversations with other 15 corporate officers and employees, attendance at management and Board meetings 16 17 and committees thereof and via reports and other information provided to them in connection therewith. Because of their possession of such information, Perry and 18 Keys, intentionally or with deliberate recklessness, disregarded the fact that the 19 materially adverse information alleged herein had not been disclosed to, was being 20 concealed from, and was the subject of misrepresentations to the investing public. 21 46. Perry and Keys participated in the drafting, preparation, and approval 22 of the various public and shareholder and investor reports and other 23 communications complained of herein and intentionally, or with deliberate 24 recklessness, disregarded the misstatements contained therein and omissions 25 therefrom, and were aware of their materially false and misleading nature. 26 Because of their Board membership, and top executive and managerial positions 27 with IndyMac, the Defendants had access to the adverse undisclosed information 28

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about IndyMac's financial condition and performance as particularized herein and 1 intentionally, or with deliberate recklessness, disregarded that these adverse facts 2 rendered the positive representations made by or about IndyMac and its business 3 issued or adopted by the Company materially false and misleading. 4 47. Perry and Keys, because of their positions of control and authority as 5 6 the top officers and as directors of the Company, and their duties as set forth in IndyMac's proxy statement, and by their obligation to sign these documents, were 7 able to and did control the content of the various SEC filings, press releases and 8 other public statements pertaining to the Company during the Class Period. Perry 9 and Keys were provided with copies of the documents alleged herein to be 10 misleading prior to or shortly after their issuance and had the ability and 11 opportunity to prevent their issuance or cause them to be corrected. Accordingly, 12 Perry and Keys are responsible for the accuracy of the public reports and releases 13 detailed herein, and are therefore primarily liable for the representations contained 14 therein. 15 48. Perry and Keys are liable as participants in a fraudulent scheme and 16 course of business that operated as a fraud or deceit on purchasers of IndyMac's 17 stock by disseminating materially false and misleading statements and/or 18 concealing material adverse facts. The scheme (i) deceived the investing public 19 regarding IndyMac's business, operations, and the intrinsic value of IndyMac's 20 stock; and (ii) caused plaintiff and other members of the Class to purchase 21 IndyMac's stock at artificially inflated prices and suffer damages as a proximate 22 result thereof. 23 2. Ernst & Young LLP 24 49. Defendant Ernst was IndyMac's auditor for fiscal years 2006 and 25 2007. It is one of the four largest accounting firms in the United States, and has 26 represented itself as an expert in accounting for the financial services industry. 27 Ernst provided an unqualified auditor's report on IndyMac's financial statements 28

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1 in each of these years, representing that it had conducted its audits in accordance with Generally Accepted Auditing Standards ("GAAS") and that IndyMac's 2 3 financial statements were prepared and presented in conformity with GAAP, which is required of all SEC filers. Ernst also issued unqualified opinions 4 regarding IndyMac management's assessment of internal controls, representing 5 that it had conducted its audits in accordance with the standards of the PCAOB. 6 These reports were included and published in IndyMac's Form 10-Ks for 2006 7 and 2007. In fact, as alleged below, all of these representations were false. 8 9 Ernst's audits were not conducted in accordance with GAAS and the financial 10 statements failed to comply with GAAP. Further, IndyMac was suffering from numerous significant deficiencies and material weakness in internal control, and 11 Ernst failed to comply with the auditing standards of the PCAOB for numerous 12 reasons. 13 50. During the Class Period, Ernst was apprised of all material issues 14 surrounding IndyMac's internal controls and financial reporting. In periodic 15 financial reports filed with the SEC dated March 1, 2007, April 26, 2007, July 31, 16 2007, November 6, 2007, and February 29, 2008, Perry and Keys both certified 17 that Ernst had been notified of (a) "all significant deficiencies in the design or 18 19 operation of internal controls" and (b) "any fraud, whether material or not." IV. JURISDICTION AND VENUE 20 51. This Court has jurisdiction over the subject matter of this action 21 pursuant to section 27 of the Securities Exchange Act of 1934 (the "Exchange 22 Act"), 15 U.S.C. § 78aa, and 28 U.S.C. §§ 1331, 1337 and 1367. 23 52. The claims alleged herein arise under sections 10(b) and 20(a) of the 24 Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule lOb-5, 17 C.F.R. 25 § 240. l Ob-5, promulgated thereunder by the SEC. 26 53. Venue is proper in this District pursuant to section 27 of the Exchange 27 Act, and 28 U.S.C. § 1391(b) and (c). Substantial acts in furtherance of the alleged 28

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fraud and its effects, including the preparation and dissemination to the investing 1 public of materially false and misleading financial statements, occurred in this 2 District. Additionally, the Company's headquarters are located in Pasadena, 3 California, in this District. 4 54. In connection with the acts, omissions and other wrongs complained 5 of herein, the Defendants, directly or. indirectly, used the means and 6 instrumentalities of interstate commerce, including, but not limited to, the United 7 States mail, interstate telephone communications, and the facilities of the national 8 securities markets. 9 10 V. CLASS ACTION ALLEGATIONS 55. Plaintiff brings this action as a class action pursuant to Federal Rule of 11 Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all persons and 12 entities who purchased or otherwise acquired the common stock of IndyMac 13 during the Class Period of March 1, 2007 through May 12, 2008, inclusive, and 14 who were damaged thereby. Excluded from the Class are Defendants, the officers 15 and directors of IndyMac and its subsidiaries, members of their immediate families 16 and their legal representatives, heirs, successors or assigns, and any entity in which 17 Defendants, IndyMac, or the IndyMac Bank have or had a controlling interest. 18 56. The members of the Class are so numerous that joinder of all 19 members is impracticable. Throughout the Class Period, IndyMac's stock was 20 actively traded on the New York Stock Exchange. While the exact number of 21 Class members is unknown to plaintiff at this time and can only be ascertained 22 through appropriate discovery, plaintiff believes that there are thousands of 23 members in the proposed Class. Record owners and other members of the Class 24 may be identified from records maintained by IndyMac or its transfer agent and 25 may be notified of the pendency of this action by mail, using a form of notice 26 similar to that customarily used in securities class actions. 27

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57. Plaintiff's claims are typical of the claims of the members of the Class 1 as all members of the Class are similarly affected by Defendants' wrongful 2 conduct in violation of the federal securities laws that is complained of herein. 3 58. Plaintiff will fairly and adequately protect the interests of the 4 members of the Class and has retained counsel competent and experienced in class 5 and securities litigation. 6 59. Common questions of law and fact exist as to all members of the 7 Class and predominate over any questions solely affecting individual members . of 8 the Class. Among the questions of law and fact common to the Class are: 9 (a) Whether the federal securities laws were violated by 10 Defendants' acts as alleged herein; 11 (b) Whether the documents, reports, filings, releases and statements 12 caused to be disseminated to the Class by Defendants during the Class Period 13 misrepresented material facts about the business, performance and financial 14 condition of IndyMac; 15 (c) Whether Defendants participated in and pursued the common 16 course of conduct and fraudulent scheme complained of herein; 17 (d) Whether Defendants acted intentionally or with deliberate 18 recklessness in making false and misleading statements of material fact; and 19 (e) Whether the market price of IndyMac stock during the Class 20 Period was artificially inflated due to the misrepresentations and omissions 21 complained of herein. 22 60. A class action is superior to all other available methods for the fair 23 and efficient adjudication of this controversy since joinder of all members is 24 impracticable. Furthermore, as the damages suffered by individual Class members 25 may be relatively small, the expense and burden of individual litigation make it 26 impracticable for members of the Class to individually redress the wrongs done to 27

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them. There will be no difficulty in the management of this action as a class 1 action. 2 VI. FACTUAL BACKGROUND REGARDING INDYMAC 3 AND ITS CORE LENDING BUSINESS 4 A. General Background 5 61. At all relevant times, substantially all of IndyMac's lending business 6 involved loans secured by real estate. Prior to and during the Class Period, 7 IndyMac specialized in Alt-A single family mortgages, which were made to 8 9 borrowers who were not required to verify their income or provide documents in order to obtain their loans. Because of the lack of income verification, Alt-A loans 10 11 were not as conservative as conforming loans, which were eligible to be sold to government sponsored enterprises ("GSEs"), such as Fannie Mae and Freddie 12 Mac. Alt-A loans are also sometimes referred to as "no doc" loans, "low doc" 13 loans, "stated income loans" and "liar loans." IndyMac also offered subprime 14 mortgage loans, which are mortgages that are offered to relatively less 15 creditworthy borrowers, and, like the various non-traditional adjustable rate 16 mortgage ("ARM") products described below, typically could not be sold to GSEs 17 such as Fannie Mae and Freddie Mac. 18 62. IndyMac also extended varieties of risky loans to its Alt-A customers 19 as well as to its prime customers: 20 • Option ARM loans. With an ARM loan, instead of a fixed rate of 21 interest, the interest rate is periodically adjusted over the term of the 22 loan based on indices such as Treasury securities or the London 23 Interbank Offered Rate ("LIBOR"). Option ARM loans are unique 24 among ARM loans in that they give the borrower the option each 25 month to make either a full, interest-only, or a "minimum payment," 26 less than the interest due on the loan. Such minimum payment Option 27 ARM loans were thus negatively amortizing loans. 28

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• "100% LTV (loan-to-value) loans" and "80/20 loans." With these 1 loans, the home buyer took out two loans, one for 80% of the 2 purchase price and another for 20% of the purchase price or "value" 3 of the property. 4 • "Hybrid ARMs." With these loans, the initial interest rate is fixed for 5 some period of time, usually two to five years, and then "floats," or 6 changes according to an established banking index, thereafter. 7 • Home equity lines of credit ("HELOCs"). These loans allowed 8 homeowners to obtain cash by borrowing money either through a first 9 or second lien loan or line of credit on a home they already owned. 10 • "Closed End Seconds." These loans were secured by second 11 mortgages on a home, and were junior in priority in the event of 12 foreclosure. 13 • Teaser rate loans and Negative Amortization Loans. These loans 14 required extremely small payments, or no payments at all, typically 15 for the first six months, and then required much larger payments 16 thereafter. 17 63. During the period from 2001 through 2006, IndyMac's lending 18 19 practices were extremely lucrative for IndyMac and its executives. IndyMac's publicly reported profits tripled during that time. Prior to 2007, when the market 20 for mortgages was expanding exponentially, Defendants largely ignored the risks 21 involved in the non-traditional mortgages originated by IndyMac and encouraged 22 IndyMac's sales staff to originate mortgages without adhering to prudent 23 origination and securitization practices. As an analyst at Friedman, Billings, 24 Ramsey observed about IndyMac, "[t]he sales culture took over and the sales 25 division really drove the company." 26 64. In 2005 and 2006, there were signs the market had hit its peak and 27 some lenders began to make fewer loans. IndyMac nonetheless increased its 28

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lending volume by 50 percent. According to David Balsam, the Chief Financial 1 Officer of IndyMac Mortgage Bank until 2006, quoted in the Los Angeles Business 2 Journal article noted above and dated September 15, 2008: "Other people, 3 meaning Wells Fargo, and so on, they pulled back. When Mike [Perry] thought he 4 was winning market share, he wasn't really winning market share — they were 5 relinquishing market share to him. In [IndyMac's] busy-ness to grow, they took on 6 a lot of loans, in some cases very thin-margin loans that were lower quality." The 7 article also quoted Joanne Kim, CEO of Wilshire Bancorp Inc., the Los Angeles- 8 9 based parent of Wilshire State Bank, a $2.4 billion-asset institution that sold as 10 much as 80 percent of its loans to IndyMac and Countrywide as stating: "IndyMac 11 was willing to buy anything." 65. IndyMac's focus on originating and underwriting as many loans as 12 possible without regard to quality posed few problems for IndyMac when housing 13 prices were increasing and interest rates remained low. There were several reasons 14 for this. First, if a buyer was not able to afford his payments, the bank received 15 title through foreclosure to a home worth more than the amount owed. Second, 16 property owners could refinance or sell their properties prior to default so long as 17 property values continued to increase and interest rates remained low. Third, 18 19 borrowers —particularly those who purchased a second home or investment property — were more likely to default on a depreciating asset than an appreciating 20 asset. As one analyst has succinctly explained in regard to Alt-A loans: 21 Because little or no determination is made of the borrower's ability to 22 service the loan, the home itself becomes the source of the repayment. . 23 .. The lender is literally banking on the borrower's ability to refinance 24 the loan at some point or, once again in a worst case scenario, sell the 25 home at a price that satisfies the outstanding loan obligation and allows 26 the borrower to recover most, if not all, of his/her equity. 27

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66. As the real estate market slowed in 2006 and 2007, and housing prices 1 stagnated and then fell, the importance of loan quality came to the forefront. With 2 3 home prices declining and refinancing increasingly unavailable, customers' ability to actually pay their mortgages became critical to minimize IndyMac's loss 4 exposure. Thus, sound underwriting practices and accurate and reliable appraisals 5 of property values also became critical to minimizing IndyMac's loss exposure. 6 Defendant Perry reassured investors on April 26, 2007, that IndyMac's loss 7 exposure was minimal even in the face of declining home values because of 8 9 IndyMac's purportedly rigorous underwriting standards: "We get not only a full 10 appraisal, but we do an automated appraisal, in addition to it. We independently 11 check their credit. We verify their employment. We verify their income and their assets and we check their income for reasonableness. We do a lot of steps on those 12 loans. We think that's a prudent business for us." However, as Defendants well 13 knew, Alt-A loans, by definition, involved very few, if any, of those rigorous 14 underwriting practices. 15 67. To further reassure investors of the "safety and soundness" of the 16 Company's business, IndyMac repeatedly touted the low loan-to-value ("LTV") 17 ratios on its Alt-A loans. A low LTV ratio of 70% meant that the lender should not 18 19 lose money even if the price of the property declined by 20%, or more, depending on the cost of foreclosure. Obviously, this meant that property had to be valued 20 fairly in the first instance: an artificially inflated appraisal would result in an 21 artificially low LTV ratio, which would create a false impression that the mortgage 22 loan was less risky. 23 68. IndyMac's mortgage default rate began to rise in 2006, almost 24 doubling between year-end 2005 and 2006. In 2007, the default and foreclosure 25 rates on IndyMac mortgages began to sky-rocket with 90 day delinquencies 26 doubling in the first two quarters, and tripling in the third and fourth quarters. 27

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69. For capital markets-funded lenders such as IndyMac, there were two 1 exit strategies for a loan: sale or securitization. Even among depositories such as 2 IndyMac, the capital required of investments in non-prime loans by bank/thrift 3 4 regulators discouraged them from holding these assets in whole loan form because of the impact on their balance sheets. When foreclosures started to surge in 2007, 5 6 the market for securities backed by non-conforming loans (such as those in which IndyMac specialized) froze up. IndyMac found it increasingly difficult to sell or 7 securitize its mortgages in order to raise capital. As a result, billions of dollars in 8 9 loans held for sale had to be converted into loans held for investment, and capital 10 reserves had to be increased. From September 30, 2007 to December 31, 2007, for 11 example, IndyMac's single-family residence ("SFR") loans held for investment increased from $4.9 billion to $13.1 billion, while loans held for sale decreased 12 from $14 billion to $3.4 billion. As summarized in IndyMac's Fourth Quarter 13 2007 earnings report, "IndyMac transferred $10.3 billion of loans to its SFR 14 [single-family residence] loans held for investment portfolio due to a lack of 15 investor demand for those non-agency products ...." 16 70. In addition to being unable to sell or securitize its mortgages, 17 IndyMac became subject to increasing "repurchase" demands from the investors to 18 19 whom IndyMac had sold mortgages and mortgage-backed securities. Contracts between lenders originating subprime mortgage loans and purchasers of those 20 loans typically require the originating lender to buy back faulty loans in certain 21 circumstances. For example, repurchase is often required if a borrower defaults on 22 an early payment, or representations and warranties made to investors regarding, 23 primarily, the quality of the underlying loans, were false or breached. Repurchase 24 demands to IndyMac sky-rocketed in 2007. According to IndyMac's earnings 25 presentation for fourth quarter 2007, IndyMac's repurchase volume increased from 26 $194 million in 2006 to $613 million in 2007, a 300% increase. 27 28

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71. Thus, in contrast to its past practices, pursuant to which IndyMac 1 underwrote or originated loans and quickly moved them off its books, IndyMac 2 now owned those mortgages — because (a) it was unable to sell or securitize them, 3 (b) it had to repurchase them, and/or (c) it was unable to get brokers to repurchase 4 them. As a result, IndyMac's adherence to its internal underwriting guidelines 5 became critical to the Company's survival, and its failures to do so previously were 6 contributing to its downfall. Instead, IndyMac violated its internal guidelines, and 7 became substantially exposed to severe risks caused by its deficient underwriting 8 practices. 9 72. In short, IndyMac's business model had always depended on two 10 elements: (a) rising real estate prices and (b) the ability to sell loans in the 11 secondary mortgage market. As long as real estate prices were rising, individuals 12 who could not afford their loan payments would be able to avoid default by selling 13 their property, or, if a borrower did default, IndyMac could recover its loan value 14 through foreclosure. And as long as IndyMac was able to sell loans it originated, it 15 would not retain the risks of poorly underwritten loans. The low default and 16 delinquency rates IndyMac experienced in the 2002-2005 period were entirely 17 dependent on both of these conditions. With the disappearance of these two 18 conditions, IndyMac's business model fell apart. Historical default rates were not 19 a suitable basis for calculating expected losses in its loan portfolio going forward. 20 Nonetheless, IndyMac, like Countrywide and Washington Mutual, improperly 21 continued to rely on those outdated historical models. 22 B. IndyMac's Underwriting, Risk Management, and Appraisal 23 Practices Were Grossly Deficient Prior to and During the Class 24 Period 25 73. Because, prior to August 2007, IndyMac was able to avoid the risks 26 associated with poorly underwritten mortgages, defendant Perry encouraged a 27 28

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1 company culture that focused on originating as many loans as possible without regard to prudent underwriting practices. 2 74. IndyMac's institutional disregard for basic principles of underwriting 3 and risk management has been documented in numerous articles, lawsuits, and 4 investigative reports, and has been corroborated by both confidential and non- 5 confidential witnesses interviewed by Lead Plaintiff's counsel. 6 75. Michelle Leigh ("Leigh") was First Vice President and Division Head 7 of Post Production Quality Control in the Consumer Lending Group at IndyMac 8 9 from August 4, 2004 to September 2006. In that position she was responsible for 10 sampling and reviewing all types of IndyMac loans. According to Leigh, the 11 PPQC audited between 600 and 1200 loans each month, and she had access to detailed information about IndyMac's actual loan underwriting practices. Soon 12 after she took over the PPQC, Leigh discovered that there were a high percentage 13 of loans that never should have been made. There were three categories of loans 14 that the PPQC reviewed. The first was called `Current' and consisted of loans that 15 had been funded in the past 90 days. The second category was "Delinquent" and 16 consisted of loans that were 90 days or more past due. The third category was 17 "Fraud," which was evaluated by IndyMac's Enterprise Risk Management 18 19 Division. The industry norm for "problems" in the Current category — measured relative to compliance with underwriting guidelines or other risk factors — was 1% 20 to 2%. However, Leigh discovered at IndyMac, in the Current category, between 21 11% and 15% of the loans had problems — ten times the industry norm. She 22 discovered that in the Delinquent category, approximately 25% of the loans had 23 problems. 24 76. Leigh was required to write PPQC quarterly reports on her findings in 25 her sampling of loan audits. Leigh prepared one preliminary report that identified 26 63 adverse findings of significant problems in the loans that she had reviewed. 27 Leigh took her report to her Senior Vice President, Nick Niland ("Niland"). 28

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1 Niland and Leigh went over her adverse findings with the business units and with Michelle Minier ("Minier"), Executive Vice President in charge of IndyMac's 2 central Mortgage Operations. Leigh stated that Minier ridiculed Leigh's concerns. 3 Minier told Leigh that she did not know what she was talking about in the findings 4 she put in the report and instructed her to wipe off most of the loans that had 5 6 significant findings. Leigh told Minier that they would not do so, or the regulators would shut down IndyMac Bank. Leigh stated that she was told by Minier that 7 Perry was aware of Leigh's preliminary report. The original report prepared by 8 9 Leigh indicated deficiencies in internal control, and appears to have been known 10 by members of IndyMac management. According the IndyMac's 2007 Proxy 11 Statement, Keys was responsible for reviewing and resolving such issues. Leigh understood that her report or the information contained therein was to be provided 12 to the Board of Directors. Minier instructed Leigh to take out the negative 13 information from her preliminary report before the final report was given to 14 IndyMac's Board of Directors. Leigh refused to alter her report, telling Minier that 15 it was accurate. The report was given to an IndyMac attorney who re-wrote the 16 report, reducing the number of adverse findings from 63 to 11. According to 17 Leigh, the attorney, who had been hired by Minier, said he did not care about 18 19 regulators and had found that regulators could be manipulated. In addition, Niland told Leigh that if the loans stayed on the report it would lower bonuses for 20 management, and if they were removed, it would result in higher bonuses. 21 77. An example of one non-conforming loan in Leigh's preliminary report 22 was a "stated income" home loan to an employee of Disneyland, who claimed an 23 annual income of $90,000. In fact, the borrower's loan file disclosed that she 24 earned $11.00 per hour as a cafeteria cashier. According to Leigh, Minier refused 25 to permit this loan to be included in Leigh's preliminary report to IndyMac's 26 Board of Directors. Leigh was so offended by the actions of Minier, the attorney, 27 and Niland that on September 8, 2006 she wrote letters to the FDIC, Freddie Mac, 28

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1 and Fannie Mae complaining that IndyMac Bank was operating in a manner that was not in compliance with regulatory guidelines. 2 78. The Bank's PPQC Department had been put under the supervision of 3 the Mortgage Operations Department, eliminating any checks on the Mortgage 4 Operations Department. This organizational structure and lack of oversight 5 violated FDIC, Fannie Mae and Freddie Mac regulations. See 12 C.F.R. § 364, 6 7 Appendix A, Part II, A. Leigh was ultimately fired by IndyMac at approximately the same time as other top internal control supervisors, including Charles Williams 8 9 ("Williams"), the head of Bank's internal audit department. According to Leigh, 10 Perry asked Williams to ignore a major problem that Williams had discovered, but 11 Williams refused to do so. According to Leigh, she and Williams were terminated (directly or constructively) because they called attention to structural deficiencies 12 in the Bank's internal controls, and noted specific deficiencies in internal controls 13 over loan underwriters. Leigh also stated that she believes that she and Williams 14 were fired because Perry and Minier sought to hide the negative findings reflected 15 in Leigh's report from IndyMac's board, and the only way for them to do that was 16 17 to fire them. "[T]hey did not want anything found." 79. Unchecked, shoddy internal controls remained the rule into and 18 19 throughout the Class Period. Wesley E. Miller ("Miller"), who worked as an underwriter for IndyMac in California from 2005 to 2007, stated that when he 20 rejected a loan as questionable, he was berated by sales managers who then went 21 over his head and obtained approval of the loan from senior vice presidents. 22 According to Miller, the underwriters' decisions might simply be overruled or the 23 underwriter might be pressured or ordered to change his decision, because the 24 managers' instructions were to "find a way to make this [loan application] work." 25 80. Scott Montilla ("Montilla"), a former IndyMac loan underwriter in 26 Arizona during the same time period, stated that about one-half of his decisions to 27 reject loans were overridden by the Bank's executives. Moreover, according to 28

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1 Montilla, some borrowers told him that they had no idea their stated incomes were being inflated as part of the application process. 2 81. Confidential Witness A ("CW A") was a Manager in IndyMac's fraud 3 audit and investigation unit from December 2004 until October 2007. According 4 to CW A, everyone at IndyMac knew that the underwriters were "pushing" bad 5 loans and that the idea that IndyMac's Alt-A loans were any different than 6 subprime loans was nonsense. Often, CW A's investigations would reveal that the 7 IndyMac underwriter or sales person had pushed through a loan with inadequate or 8 9 fanciful documentation. CW A stated that the front office often overrode any 10 findings or improper conduct by underwriters, with no or weak explanations. 11 According to CW A, central mortgage operations, including Perry, knew full well of the rampant loan fraud but did not care so long as home prices continued to rise. 12 According to CW A, Perry had "vitriol" for quality control/audits and Perry took 13 actions to "neuter" the quality control/audits department by moving the quality 14 control department from the secondary mortgage division to the central mortgage 15 operations division. As a result, the quality control department was now controlled 16 by the very division it was supposed to monitor. 17 82. Confidential Witness B ("CW B") was a Senior Underwriter who 18 19 joined IndyMac in 1997, and worked in IndyMac's Wholesale Mortgage Division until July 2008. CW B confirmed that underwriters were incentivized by 20 IndyMac's bonus system to approve loans without adequate review, and some took 21 advantage of the opportunity. For example, one underwriter in Wisconsin was 22 approving 20 loan applications per day. CW B was also assigned to process loan 23 applications acquired in connection with IndyMac's hiring of over 1,400 24 professionals from American Home Mortgage, a bankrupt loan originator that had 25 concentrated heavily in making subprime loans. For loans that had previously 26 reached the first stage of approvals at American Home Mortgage, she and other 27 employees were instructed to approve loans whether or not they met IndyMac's 28

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1 standards. Many loans did not meet IndyMac's standards, but were approved anyway. CW B described American Home Mortgage employees as operating a 2 "fraud shop" within IndyMac. Eventually IndyMac hired ten former American 3 Home Mortgage underwriters to approve additional loans generated by that 4 company because IndyMac appraisers were unwilling to approve many of these 5 loans. 6 83. Cody Holland joined IndyMac as a loan officer in September 2007. 7 According to Holland, IndyMac regularly violated its own internal guidelines for 8 9 loan approvals. Although the guidelines at that time required borrowers to have 10 minimum FICO scores of 620, loans were approved for borrowers with scores as 11 low as 580. IndyMac also regularly approved loans with loan-to-value ratios as high as 100%, notwithstanding Perry's public statements that IndyMac had 12 discontinued such loans. 13 84. Confidential Witness C ("CW C") was a Mortgage Underwriter in a 14 regional office of IndyMac beginning in August 2007. According to CW C, loan 15 underwriters were told to approve loans that did not satisfy the current guidelines. 16 17 Loan officers regularly bypassed regional underwriters to gain approval of loans outside the guidelines by contacting senior operations management at the Bank's 18 19 Pasadena headquarters, who would order approval of loans in markets with which they were not familiar. FICO score requirements were regularly waived in order to 20 increase loan volume. Also, according to CW C, IndyMac went so far as to 21 instruct employees during loan underwriting training sessions as to how to obtain 22 exceptions to the lending guidelines, and underwriters began to view the mortgage 23 guidelines as a joke. In addition, appraisals were frequently provided by a small 24 number of brokers who were chosen because of their willingness to inflate 25 appraisals. 26 85. Confidential Witness D ("CW D") was an IndyMac Underwriting 27 Team Leader from 2005 to July 2007, and supervised eight underwriters. CW D 28

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confirmed that Frank Sillman, head of the IndyMac Mortgage Bank Division, 1 regularly overrode underwriters' decisions to deny loans. Underwriters were 2 pressured to approve loans and told to "do anything to keep the loan from going to 3 Countrywide." Moreover, as an underwriting team leader, CW D received an e- 4 mail towards the end of the month from his Regional Manager, imploring CW D to 5 "approve as many loans as you can because we need a certain amount of mortgage 6 volume this month." 7 86. On June 30, 2008, the Center for Responsible Lending (the "CRL") 8 9 issued a report titled "IndyMac: What Went Wrong? How an `Alt-A' Lender 10 Fueled its Growth with Unsound and Abusive Mortgage Lending," which 11 corroborates and/or reports the witness statements recounted above. The CRL describes itself as a national nonprofit, nonpartisan research and policy 12 organization dedicated to protecting home ownership and family wealth by 13 working to eliminate abusive financial practices. CRL is affiliated with Self-Help, 14 the nation's largest community development financial institution. Based on 15 interviews with 19 former employees, mostly underwriters, and review of pending 16 actions against the Bank and affiliates, CRL uncovered evidence of pressure from 17 managers and underwriters to approve unsound loans in contravention of 18 19 IndyMac's internal underwriting guidelines, and the overruling of underwriters' decisions to deny loans with falsified paperwork and inflated appraisals. 20 87. The Treasury Report confirms CRL's findings. Following extensive 21 review of documents and interviews with OTS, FDIC and IndyMac employees, the 22 Report concludes that the Bank's "unsound underwriting practices" — including 23 blatantly deficient and unsupported property appraisals — was a key factor causing 24 the Bank's failure. In its discussion of this factor, the Treasury Report states: 25 To explore the impact of thrift underwriting on loan performance, we 26 reviewed 22 delinquent loans that represented a cross-section of the 27 loan products in IndyMac's loans held to maturity portfolio. These 28

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loans were 90 days or more delinquent as of August 31, 2008. We 1 reviewed the loan files and discussed the loans with IndyMac officials 2 who were retained by FDIC in the conservatorship.... 3 For the loans reviewed, we found little, if any, review of 4 borrower qualifications, including income, assets, and 5 employment. We also found weaknesses with property appraisals 6 obtained to support the collateral on the loans. For example, among 7 other things, we noted instances where IndyMac officials accepted 8 appraisals that were not in compliance with the Uniform Standard of 9 Professional Appraisal Practice (USPAP). We also found instances 10 where IndyMac obtained multiple appraisals on a property that had 11 vastly different values. There was no evidence to support, or explain 12 why different values were determined. In other instances, IndyMac 13 allowed the borrowers to select the appraiser. As illustrative of these 14 problems, the file for one 80/20, $1.5 million loan we reviewed 15 contained several appraisals with values ranging between $639,000 16 and $1.5 million. There was no support to show why the higher value 17 appraisal was the appropriate one to use for approving the loan. 18 (emphasis added) 19 88. The OIG reviewed a sample of 22 loans in the course of its material 20 loss review—out of a total loan portfolio of approximately 44,000 loans totaling $13 21 billion. The Treasury Report included a detailed description of four loans it 22 reviewed which dramatically illustrate some of the weakest underwriting practices. 23 Three of the loans were originated during or just before the Class Period. 24 Loan 1: On May 2, 2007, IndyMac approved a $926,000 stated income 25 loan for the borrower, which was secured by a one acre lot in Delray 26 Beach, Florida. The loan was an adjustable rate mortgage with a 5-year 27

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term and a beginning interest rate of 5.875 percent, which was subject 1 to change monthly[.] 2 As a stated income loan, IndyMac performed no verification of 3 the borrower's self-employment income of $50,000 a month ($600,000 4 annually). IndyMac also did not verify the borrower's assets. The loan 5 file contained a copy of a signed request by the borrower to the Internal 6 Revenue Service (IRS) for copies of past tax returns, but we found no 7 evidence that IndyMac ever obtained the tax returns. According to an 8 IndyMac official, IndyMac had borrowers sign such requests as a "scare 9 tactic," assuming that they would be more forthcoming on their stated 10 income. In practice, however, we were told that IndyMac seldom 11 forwarded the signed requests on to the IRS. 12 The loan file contained an appraisal which indicated that the 13 property value was $1.43 million. This value was based on comparable 14 properties that had been improved with single family residences. 15 However, the comparable properties were located closer to the ocean 16 and bay, and their values were based on listing price instead of the 17 actual selling price. The appraised value also did not take into 18 consideration a slowdown in the real estate market. We saw no 19 evidence in the loan file that IndyMac resolved these and other 20 anomalies with the appraisal. 21 Loan 2: In November 2007, IndyMac approved a $3 million stated 22 income loan, secured by the borrower's primary residence in Scottsdale, 23 Arizona. The loan proceeds were used to refinance the primary 24 residence which the borrower had owned for 11 years and reported its 25 value as $4.9 million. 26 As a stated income loan, IndyMac performed no verification of 27 the borrower's reported self-employment income of $57,000 a month 28

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1 ($684,000 annually). Contrary to IndyMac policy, the borrower selected the appraiser who appraised the property at $4.9 million. Notes in the 2 loan file indicated that the borrower had listed the property for sale in 3 November 2006, first at a price of $4.9 million that was later reduced to 4 $4.5 million before the borrower pulled the property off the market. 5 Despite this, the appraiser concluded that the value of $4.9 million 6 appeared to be reasonable. IndyMac accepted the appraiser's value 7 based on a review of online sale and public records. It did not 8 physically inspect the property. 9 The borrower made no payments on the loan before default. The 10 total delinquent loan amount as of November 2008 was $3,015,625. 11 According to the IndyMac official, the property sold in October 2008 12 for $2.0 million. 13 Loan 3: In February 2007, IndyMac provided the borrower a stated 14 income, 80/20 loan, for a combined total of $1.475 million, to purchase 15 a property in Marco Island, Florida. 16 As a stated income loan, IndyMac performed no verification of 17 the borrower's reported income of $28,500 a month ($342,000 18 annually). For 80/20 loans, IndyMac allowed an $800,000/$200,000 19 maximum loan amount and a maximum combined loan amount of $1 20 million. This loan was an exception to IndyMac policy as the combined 21 loan amount of $1,475,000 exceeded the maximum combined loan 22 amount. The loan exception was approved anyway. 23 Various appraisals in the loan file contained significant 24 differences with no indication of how they were resolved by IndyMac. 25 A January 2007 appraisal valued the property at $1.48 million. A 26 valuation analysis prepared by an IndyMac employee on January 25, 27 2007, stated that the skill level of the appraiser was unacceptable the 28

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appraiser had not provided accurate comparable properties to the 1 subject property and did not accurately consider the location of the 2 property. The IndyMac employee estimated the property value at $1 3 million and recommended that another appraisal be obtained. Another 4 note in the loan indicated that the IndyMac official overruled the 5 employee's recommendation and the appraisal was accepted. The 6 IndyMac official, however, adjusted the appraised value approximately 7 10 percent lower, to $1.33 million, citing as a justification that a 8 property on the same street had sold for $1.97 million. 9 The borrower made no payments before defaulting on the 10 combined $1.48 million loans. According to the IndyMac official, the 11 borrower deeded the property to the thrift in lieu of foreclosure. The 12 IndyMac official estimated in November 2008 that the property was 13 worth about $700,000. 14 89. The Treasury Report also noted that IndyMac faced significant risk 15 because IndyMac "had several significant asset concentrations that warranted a 16 higher level of capital in the current environment, such as nontraditional mortgage 17 loans with negative amortization potential, Alt-A loans, and geographic 18 concentration of loans in California and areas rated high-risk by several mortgage 19 insurance companies." According to the Treasury Report, OTS had filed a report 20 in 2005 noting the dangerous asset concentrations in IndyMac's portfolio, and had 21 expressed concerns with IndyMac's liquidity. 22 90. IndyMac's improper and fraudulent lending practices were also 23 documented in the complaint filed in the action styled Financial Guaranty 24 Insurance Co. v. IndyMac Bank, F.S.B., Case No. 08-CV-06010-LAP, in the 25 United States District Court for the Southern District of New York. The FGIC is a 26 financial guaranty insurance company headquartered in New York, which works 27

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closely with state and local governments. The complaint in that case quotes former 1 employees stating: 2 (a) According to a former IndyMac central banking group vice- a president, that IndyMac institutionalized exceptions to its own 4 underwriting guidelines that allowed IndyMac to make and 5 approve mortgage loans that should have been denied under the 6 actual guidelines and that direct fraud by IndyMac loan sales 7 representatives was rampant in the mortgage loan origination 8 process at IndyMac; 9 (b) According to a former IndyMac loan underwriter, that IndyMac's 10 loan origination process had evolved into organized chaos where, 11 at management's direction, any concessions or adjustments were 12 made in order to close loans that would not normally be made, 13 including adjusting appraisals to make the loan work; 14 (c) According to a former IndyMac vice president in IndyMac's 15 mortgage banking segment, that in order to keep pace with its 16 competition, IndyMac greatly loosened its underwriting 17 guidelines in order to bring in more loans; 18 (d) According to a former IndyMac senior auditor in IndyMac's 19 central mortgage operations, that an increasing number of loans 20 were made through apparently fraudulent or misrepresented 21 documentation and there was an increase in defaults because of 22 these misrepresentations in the underwriting process, the 23 relaxation of the underwriting guidelines and approval of 24 borderline loans; 25 (e) According to a former IndyMac investigator in IndyMac's central 26 mortgage operations, that the quality of IndyMac's loan 27 origination process had become a running joke within IndyMac, 28

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and that a whole class of IndyMac — originated mortgages were 1 referred to internally as "Disneyland Loans," because of 2 insufficient documentation or the borrower's inability to repay 3 the mortgage; and 4 (f) According to a former IndyMac senior loan processor, that the 5 increase in the number of IndyMac-originated delinquent loans 6 was due to misrepresentations and fraud occurring in the 7 mortgage loan origination process. 8 91. A review of IndyMac loans by MBIA Insurance Company ("MBIA"), 9 10 an insurer of certain asset-backed securities originated by IndyMac, showed that 11 418 of 6,970 loans securitized by IndyMac in mortgage pool INDS 2007-1 had defaulted by December 31, 2007, within one year of securitization, and typically, 12 in little more than a year from origination. All but 17 of the 418 defaulted loans 13 were in material non-compliance with IndyMac's underwriting guidelines. In 14 mortgage pool INDS 2007-2, also insured and reviewed by MBIA, 294 of 297 15 defaulted loans were in material non-compliance with IndyMac's underwriting 16 17 guidelines. Additional facts demonstrating IndyMac's inadequate and fraudulent underwriting practices are set forth in the complaint filed by MBIA in a case 18 19 entitled MBIA Insurance Co. v. IndyMac ABS, Inc., Los Angeles Co. Super. Ct. Case No. BC422358 (filed Sept. 22, 2009). 20 92. The following examples are illustrative of the mortgage loans 21 reviewed by MBIA and their non-compliance with Defendants' representations to 22 investors: 23 (a) On September 22, 2006, a loan with a principal balance of 24 $39,600.00 was made to a borrower in Goodrich, Michigan on a property with an 25 original appraisal value of $198,000.00 and a senior loan balance of $158,500.00. 26 The borrower stated that he was employed as a truck driver, did not own his 27 vehicle, and had income of $8,950.00 per month in 2006. The borrower had been 28

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1 employed by his current employer for approximately 2 weeks when applying for the loan, demonstrated liquid assets of only $568.00, and had no prior housing 2 payment history. His stated income was not substantiated by the credit/asset 3 profile. The borrower filed for bankruptcy on February 18, 2008, and the 4 borrower's court filings indicate the borrower earned $3,854 per month—less than 5 44% of what had been stated at the time of the origination of the loan. (Loan 6 7 #6074318 —INDS 2001-1). (b) On January 24, 2007, a loan with a principal balance of 8 9 $70,500.00 was made to a borrower in Rosamond, California secured by a property 10 with an original appraisal value of $352,654.00 and a senior loan balance of 11 $282,100.00. The borrower stated his income to be $11,000 per month. However, the borrower demonstrated only $3,802.40 in net assets. Further, the borrower was 12 self-employed and had been at her job for only 7 months. The loan file did not 13 contain a required CPA letter to verify self-employment. Moreover, prior to being 14 self-employed, the borrower was an employee of the mortgage broker issuing the 15 loan and prior to purchasing the property had lived with her family. Accordingly, 16 the stated income was unreasonable on its face based on the nature of the 17 borrower's employment. (Loan # 125257414 — INDS 2007-2). 18 (c) On February 5, 2007, a loan with a principal balance of 19 $57,750.00 was made to a borrower in Hemet, California on a property with an 20 original appraisal value of $385,000.00 and a senior loan balance of $308,0000.00. 21 The borrower stated his income to be $11,700.00 per month as a food court 22 manager at a local Costco Wholesale Club. The stated income was unreasonable 23 on its face based on the borrower's employment. The borrower filed for 24 bankruptcy on November 26, 2007. The borrower's court filings indicated the 25 borrower earned only $4,168 per month, less than 36% of what had been stated at 26 the time of the origination of the loan. (Loan # 125280044 — INDS 2007-1). 27

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93. Those mortgage loans are illustrative of IndyMac's failure to comply 1 with its own loan underwriting guidelines, contrary to representations made to 2 purchasers of asset-backed securities, and investors. 3 94. In addition, a significant number of mortgage loans had debt to 4 income ratios far in excess of applicable underwriting guidelines, loan-to-value 5 ratios far in excess of applicable underwriting guidelines, and were made on the 6 basis of "stated incomes" that were unreasonable on their face. The information 7 conveyed to purchasers of those securities, including information regarding debt to 8 9 income and loan-to-value statistics for the mortgage loan pools, was materially false. 10 95. On July 2, 2010, the FDIC filed a lawsuit against four former officers, 11 who headed IndyMac's Homebuilder Division ("HBD"). The case is captioned: 12 Federal Deposit Insurance Corporation, as Receiver for IndyMac Bank, F.S.B. v. 13 Scott Van Dellen, Richard Koon, Kenneth Shellem, and William Rothman, cv-10- 14 4915 (C.D. Cal. July 2, 2010) (the "FDIC Complaint"). This case was the first 15 filed by the FDIC against officers of any of the banks which failed as a result of the 16 subprime crisis. The FDIC Complaint details the abusive underwriting and lending 17 practices of the Homebuilder Division and states that at the time the FDIC took 18 19 control of IndyMac on July 11, 2008, the outstanding balance on HBD's portfolio of homebuilder loans was nearly $900 million. The FDIC alleges in its complaint 20 that IndyMac's losses on HBD's portfolio "are estimated to exceed at least $500 21 million." FDIC Complaint T 5. 22 96. The FDIC Complaint describes Perry as having hands-on, detailed 23 knowledge of the deteriorating housing market and other specific risks facing the 24 Homebuilder Division and IndyMac in general during the 2006-2008 time period, 25 thus, showing that Defendant Perry possessed this information at the very same 26 time that he made repeated public statements touting the success and prospects of 27

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1 the Company and the Homebuilder Division to IndyMac's shareholders. For 2 example, the FDIC Complaint alleges that: a) Perry frequently forwarded news articles warning of deteriorating 3 conditions in the home builder market and cautioning the head of the 4 Homebui1der Division, Van Dellen, to "be careful," including for 5 example: 6 • A March 3, 2006 article in The Wall Street Journal. Perry 7 underlined portions of this article that discussed reduced sales 8 in single-family homes and reported the highest level of unsold 9 new homes in nearly a decade. Perry made a handwritten note 10 on the article stating, `Be careful, especially on our new 11 construction projects." 12 • A September 11, 2006 article in the Los Angeles Business 13 Journal. Perry sent this article to highlight declining sales 14 rates. He circled a portion of the article that addressed a steep 15 32% decline in sales from the same month of the prior year. 16 • An October 2, 2006 article in Outfront. The first paragraph in 17 the article stated that the "bad news keeps on coming from the 18 home front." The article noted that KB Homes slashed earnings 19 forecasts for the second time since June, and that shares had 20 fallen 40% over the past year. Perry made a handwritten note 21 on the article stating "I am in the middle of this one... I 22 definitely think the economy will slow due to home prices 23 abating." 24 • A November 8, 2006 article from an unknown publication. The 25 article came from Bloomberg News and discussed declining 26 sales experienced by home builder Toll Bros., Inc. and Beazer 27

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Homes USA, Inc. Once again, Perry made a handwritten note 1 on the article stating, "Be careful." 2 • A May 4, 2007 article in US Economics Analyst. Perry circled 3 a portion of the article warning that a housing downturn in 4 Florida was likely to cause an outright recession. Perry also 5 wrote a note on the article stating "Sell Florida. Your first loss 6 is your best loss." 7 FDIC Complaint T 35. 8 Thus, Perry was fully aware that, despite his public statements to the 9 contrary, the real estate economy was already slowing in 2006, and 10 this would adversely affect IndyMac. 11 b) One of IndyMac's "core values" was that "speed rules at IndyMac." 12 This was a firmly ingrained culture at IndyMac, and was part of 13 IndyMac's focus on generating as many loans as possible, with little 14 regard for credit quality. Perry implemented the "speed rules" 15 concept through practices including his "Flamingo Rule," which 16 required employees seeking his guidance to "pop in my office, 17 quickly present the issue (in the amount of time you can 'stand on one 18 leg!') and get my feedback." Van Dellen implemented a similar 19 arbitrary rule limiting discussions of loans in the loan committee to 20 20 minutes. At one point, Van Dellen even attempted to implement a 21 policy abolishing loan approval memoranda altogether. FDIC 22 Complaint ¶ 54. 23 c) IndyMac's upper management commissioned an internal report of the 24 Homebuilder Division in early 2008, which was subsequently 25 reviewed by an outside consultant, who summarized his conclusions 26 to Perry. The report reviewed ten problem loans, including risky 27 condo loans in Florida. The consultant commented that the 28

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weaknesses in the loans "were present at the origination of these 1 deals. I don't think I'm using hindsight here." The FDIC Complaint 2 also alleges that Perry responded by blaming Homebuilder 3 management, stating "I was aware of the condo deals (and was 4 opposed to them .... To me, it shows you can't be in this business.... 5 because you are always getting screwed every down cycle and losing 6 all your profits for years ... because the management and loan officers 7 are too `in bed' with the builders and always will be. I was not aware 8 of the other issues and they represent a disturbing lack of 9 management, judgment and discipline in a business that was supposed 10 to be all about credit risk management (unlike mortgage banking) ..." 11 A few months later on May 7, 2008, Perry wrote a note to [IndyMac's 12 President] Wohl and Van Dellen attaching a copy of Koon's June 30, 13 2006 memorandum on "changing market conditions." Perry told 14 Wohl and Van Dellen that Koon's departure [from HBD on July 15, 15 2006] and his memorandum "should have been the signal we needed 16 to batten down the hatches and stop production." FDIC Complaint, ¶¶ 17 65-66. 18 97. Facts alleged in the Complaint the SEC filed against S. Blair 19 Abernathy ("Abernathy Complaint"), who succeeded Keys as Chief Financial 20 Officer, provide further evidence that IndyMac's loans during the Class Period 21 were based on fraudulent underwriting, and confirm that IndyMac executives knew 22 about the pervasive fraud in borrower loan documents, because they received or 23 had access to internal monthly reports issued by IndyMac Bank's PPQC 24 department and distributed throughout the Company by e-mail and posted on 25 IndyMac's intranet site. Abernathy Complaint T¶ 16-20. The PPQC reports 26 disclosed the systemic and pervasive violation of underwriting standards at 27 IndyMac. The PPQC unit performed monthly quality control audits of the Bank's 28

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loan production and issued monthly reports based on an analysis of a statistically 1 valid random sample of the Bank's total loan production. Id. ¶ 16. The reports 2 revealed that the "defect rate "4 of a sample of IndyMac Bank's total loan 3 production ranged from 10% to 22% from September 2005 though August 2007 4 and that the Conduit Division had a defect rate of up to 30% from April 2005 5 through August 2007; and that 12% to 18% of a random sample of IndyMac 6 Bank's total loan production contained misrepresentations from January 2007 7 (when reporting of that statistic began) through August 2007. Id. ¶ 19. From May 8 through August 2007, IndyMac Bank conducted six offerings of residential 9 mortgage-backed securities ("MBSs") totaling $2.5 billion securitizing only 10 Conduit Division loans. According to the SEC, each of these offerings 11 misrepresented the quality of the loans underlying the MBSs, because of 12 borrowers' misrepresented information in loan documents they filled out in 13 obtaining the loans. Id. ¶ 15. 14 98. Specifically, from 1994 to August 2007, IndyMac's PPQC department 15 conducted monthly quality control audits of the Bank's loan production, then 16 selected a statistically valid random sample of the Bank's total loan production and 17 assessed each loan to determine whether the borrower or a third party, such as the 18 19 mortgage broker or appraiser, misrepresented information in obtaining the loan. The PPQC reports concluded, among other findings, that from January through 20

21 4 The PPQC reported the "defect rate" as follows: If PPQC identified a loan misrepresentation, it recalculated the loan's estimated lifetime loan loss using the 22 corrected information. PPQC then determined the increase in the loss estimate between the loan as underwritten and as corrected. PPQC rated the estimated loan 23 loss as "severe" if it had a misrepresentation finding and the loss estimate increased by more than 50 basis points. PPQC also rated a loan "severe" if it had an 24 underwriting error and an increase in the loss estimate greater than both 100% and 100 basis points. PPQC rated loans as "moderate" if the loss estimate increased by 25 up to 50 basis points and was based on a loan misrepresentation, or increased by both 50% to 100% and 50 to 100 basis points and was based on an underwriting 26 error. In addition to the "severe" and "moderate" rates, PPQC reported the "defect" rate, which was the "severe" and "moderate" rates combined. Abernathy 27 Complaint ¶ 18. 28

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August 2007, 12% to 18% of IndyMac's loans contained the following 1 misrepresentations regarding important loan and borrower characteristics: 2 (1) borrowers stated that the home was their primary residence 3 when it actually was a second home for which they would be 4 less likely to repay the loan; 5 (2) the appraisals were inflated to artificially lower the loan-to- 6 value ratio; 7 (3) borrowers overstated their income, for example, a flooring 8 installer gave a stated income of $13,500 per month; 9 (4) borrowers overstated their employment, for example, one stated 10 that he worked for a trucking company but actually had quit 11 nine months earlier; 12 (5) borrowers overstated assets, or understated or failed to disclose 13 liabilities, for example, one borrower stated that he had $29,000 14 in savings when he had zero, and another obtained loans on two 15 properties from different banks; and 16 (6) borrowers were "straw buyers" — a borrower with good credit 17 obtained a loan for a relative with poor credit, thus concealing 18 the true identity, employment and credit history of the 19 borrower. 20 Abernathy Complaint T¶ 16, 19. 21 99. According to the Abernathy Complaint, the misrepresentation 22 information identified in the PPQC reports was extremely reliable: Before the 23 PPQC made a finding that a loan contained a misrepresentation, it developed 24 25 actual proof that the information on the loan application was false. For example, PPQC did not find an employment misrepresentation occurred unless the borrower 26 admitted that the information was false, or the employer confirmed that the 27 borrower did not work there. PPQC, however, gave each mortgage production 28

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unit, including the Conduit Division, the opportunity to dispute any finding before 1 it became final. The Conduit Division disagreed with PPQCs findings only about 2 2% of the time. PPQC prepared monthly audit reports and distributed them about 3 4 three to four months after the audited month. The reports supplied spreadsheets that provided loan-by-loan detail of PPQC's findings with supporting reasons and 5 the response of the business unit responsible for the loans. According to the SEC, 6 the PPQC Department distributed the monthly reports by e-mail and posted them 7 on IndyMac's intranet website. Abernathy Complaint ¶T 16-20. Thus, they were 8 available to the Defendants. 9 100. The loan information was material. The MBSs in these six offerings 10 11 experienced substantial loan delinquencies and ratings downgrades. Abernathy Complaint ¶ 5. The shoddy underwriting increased the risk of default and 12 foreclosure, requiring an increase in ALL. Further, as alleged herein in ¶¶ 328- 13 335, these MBSs were likely subject to warranties from IndyMac to repurchase the 14 loans if they breached underwriting representations and warranties — which they 15 did — thus requiring IndyMac to increase the level of Secondary Market Reserves. 16 101. On July 20, 2008, The New York Post published an article by 17 investigative reporter Teri Buhl titled "[OTS] Officials Missed IndyMac Red 18 19 Flags." That article listed three "red flags" that regulators should have noticed, and that Defendants — including Ernst — were aware of long before the Bank's collapse: 20 IndyMac was late in adhering to a federal rule banning lenders 21 from lending to people who did not provide ample documentation 22 verifying their income. 23 The rule, which was mandated by a group of regulators that 24 included the Federal Reserve, FDIC and OTS, took effect in September 25 2006. But according to internal IndyMac compliance documents 26 reviewed by The Post, IndyMac didn't comply until November 2007 - 27 something OTS compliance officials should have spotted. 28

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Another missed opportunity, [advocacy group The Committee for 1 Responsible Lending] said, came when the lender would pull 2 employees in on the weekends in 2006 to tweak loan documents by 3 inflating home appraisals on mortgages that had been rejected by Wall 4 Street. Had OTS safety and soundness officers reviewed IndyMac's 5 appraisal valuation processes, CRL said, they would have noticed the 6 practice. 7 The third strike for the regulators came in August 2007, when 8 IndyMac bought branches of the defunct American Home Mortgage, 9 even though data show the bank had a growing problem with non- 10 performing assets. 11 "The bottom line is that the IndyMac failure could have been 12 prevented if common sense lending standards had been required in 13 2006," said Martin Eakes, CRL's CEO. 14 102. Further evidencing the fraudulent quality of the loans underwritten 15 and originated by IndyMac, and its deviation from safe and sound banking 16 practices, on December 31, 2008, Bloomberg.com reported that Fannie Mae and 17 18 Freddie Mac had found IndyMac to be liable to repurchase between $1 billion and 19 $10 billion in loans that violated representation and warranty agreements between IndyMac and those agencies. When a mortgage originator sells the loan, it makes 20 representations and warranties to the buyer with respect to the borrower, the 21 property securing the loan, the mortgage instruments, and the underwriting. If 22 those representations and warranties are false or breached — which most 23 commonly occurs when there is fraud, misrepresentation, or unexpected 24 delinquency from poor quality in the underlying mortgage — the 25 originator/underwriter is obligated to repurchase the mortgage. James Lockhart, 26 the director of the Federal Housing Finance Agency, the regulator of Fannie Mae 27 and Freddie Mac, explained the reason for such incredibly large repurchase 28

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demands: "In 2006 and 2007, the underwriting was so poor, there was a lot of 1 2 fraud that happened or a total misrepresentation." 103. IndyMac's fraudulent underwriting practices also encompassed its 3 solicitation and use of artificially inflated property appraisals. IndyMac's 4 solicitation and use of inflated appraisals from non-independent appraisers is 5 currently the subject of investigations by the FBI and FDIC. As The New York 6 Post reported on August 3, 2008: 7 The federal investigation into mortgage fraud at IndyMac Federal 8 Bank has expanded into the company's Homebuilder Division, 9 according to a bank executive interviewed by the FBI and FDIC. 10 Investigators have seized 2005-06 construction loan audit reports from 11 the files of the Homebuilder Division, the executive told The Post, and 12 later questioned him and other workers about the reports, he said. 13 The recently renamed Homebuilder Division, which lent money 14 on commercial and residential construction projects until [it] stopped 15 lending at the end of 2007, had a staggering 52 percent of its $1.3 16 billion in loans classified as non-performing as of March 31, [2008], 17 according to a government filing. 18 Even in a down market, a non-performing rate closer to 20 19 percent to 30 percent is more usual, according to a person familiar with 20 the local real estate market. 21 Based on the question asked by investigators, one focus of the 22 probe appears to center on whether or not the appraisal inspectors 23 inflated real-estate development project values and whether IndyMac 24 loan officers gave independent appraisers false information. 25 "They asked about how we verify appraisal values," said the 26 executive, who spoke on the condition of anonymity. 27

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"I explained the lack of risk controls in place for that group, such 1 as loan officers who were allowed to pick their own appraisers instead 2 of using a third party to assign an independent appraiser - which is a 3 typical industry practice," he said. 4 104. Independent witnesses have corroborated the existence of such 5 fraudulent appraisal practices. According to Andrew Eliopolus ("Eliopolus"), 6 President of Eliopolus Development, a private construction company, IndyMac 7 approved a $36.5 million loan to Eliopulos Development in order to develop real 8 9 estate near Lancaster, California that contained 539 home plots on about 900 acres. 10 Later, in April 2007, in connection with a renewal on the loan, IndyMac 11 commissioned an appraisal and determined that the property was worth $82 million. On the basis of this appraisal the loan was extended through December 12 31, 2007. This appraisal permitted IndyMac to claim that the loan-to-value ratio 13 was 33%, and that the loan was oversecured. In order to extend the loan beyond 14 January 1, 2008, IndyMac required a new appraisal, which was completed in 15 December 2007, and determined that the property was worth only $17 million, 16 even though there had not been a significant shift in real estate values in the area 17 where the project was located in the eight months between the two appraisals. The 18 19 loan had been reviewed by the "IndyMac Bank Senior Loan Committee," which Eliopolus was told consisted solely of Perry. 20 105. According to Vernon Martin, the Company's Chief Commercial 21 Appraiser in 2001 and 2002, IndyMac hired Perry's father and father-in-law as the 22 sole construction inspectors in the Sacramento, California region. Perry's father 23 remained associated with IndyMac as a purportedly independent inspector through 24 2008. IndyMac also relied heavily on a small number of appraisers who were 25 known to be more "flexible" than others, that is, more willing to grant higher 26 appraisals to parcels of land. In one instance, prior to the Class Period, a 27 commercial property that had been purchased for $2 million was appraised at $17 28

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1 million a few months later, even though the property had no tenants. In another

instance, an undeveloped parcel of land was purchased for $18 million, and 2 appraised at $30 million on the claimed basis that the developer added value to the 3 4 property simply by buying it.

106. According to former IndyMac loan officer Cody Holland ("Holland"), 5 IndyMac continued to manipulate appraisals into the Class Period, and said 6 manipulation affected both residential and commercial mortgages. Specifically, 7 IndyMac selected particular appraisers who were known to inflate their appraisals 8 9 for properties where the loan appeared questionable. Holland's statements are 10 corroborated by the confidential witnesses cited in the complaint in the action

11 styled Cedeno v. IndyMac Bancorp, Inc., et al., Case No. 06-CV-6438 -JGK, filed in the United States District Court for the Southern District of New York, who are 12 alleged to have said that IndyMac told its outside appraisers the "target value" that 13 14 was needed to secure approval of a residential loan. Appraisers who accommodated the Bank's requested appraisal values were rewarded with 15 additional work, while those who did not were cut off. IndyMac's Chief Appraiser 16 and other executives were aware of and acquiesced in this practice. IndyMac's 17 management intimidated and threatened to fire employees who rejected fraudulent 18 19 appraisals. 107. The Treasury Report also identified particularly unsound 20 underwriting, risk management and appraisal practices "in several significant areas 21 of [IndyMac's] operations" based on interviews with OTS, FDIC and IndyMac 22 employees and review of documents. In particular, The Treasury Report also 23 found that the appraisals in the Homebuilders Division ("HBD") (1) violated 24 policies and procedures; (2) violated OTS and Uniform Standards of Professional 25 Appraisal Practice; (3) used inflated appraised values; (4) lacked market analysis 26 and feasibility studies to support appraised value; (5) valued properties far in 27

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1 excess of the recent sale prices for the subject properties; and (6) used retail values 2 for subdivisions instead of prospective market value at the time of completion. 108. In early 2008, an independent auditor was brought in to examine 3 IndyMac's appraisal practices, among other things. The primary finding of the 4 firm, based on interviews with retail and wholesale underwriters, was that IndyMac 5 underwriting was not centrally managed and was not consistent across the 6 Company. 7 109. In short, fraudulent and reckless loan underwriting practices— 8 9 including the solicitation and use of fraudulent, manipulated appraisals—were 10 pervasive both prior to and during the Class Period. As discussed below, IndyMac 11 and Perry not only concealed these practices, they made repeated false statements touting the relatively conservative nature of IndyMac's underwriting policies and 12 practices in order to reassure investors that IndyMac would "fare better" than other 13 lenders. 14 C. Internal Audits, Outside Audits, and OTS Examinations 15 Repeatedly Identified Underwriting, Appraisal and Internal 16 Control Deficiencies at IndyMac 17 110. Perry, Keys, and Ernst were fully aware of these deficiencies in 18 19 underwriting and internal controls because they were repeatedly identified in internal audits, outside audits, and OTS examinations — yet never corrected. 20 111. For example, the Conduit Division was one of IndyMac's most 21 troubled divisions. An internal IndyMac audit identified problems with the 22 Conduit Division's loan approval and underwriting processes as early as 2005, and 23 recommended that the division increase investment in infrastructure and personnel. 24 According to OTS, no changes were ever made. 25 112. In 2006, an IndyMac internal audit again reported problems in the 26 Conduit Division. That same year, Ernst itself reported the Conduit Division as a 27 financial reporting control deficiency. Ernst found that the division did not have 28

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1 an effective process or system in place to oversee the execution of its trading activities or for monitoring the exposure to sellers, which increased credit risk. 2 Perry and Keys were also aware that the Conduit Division in particular was 3 producing defective loans, because the PPQC department distributed monthly 4 reports that showed that the Conduit Division had a defect rate of up to 30% from 5 April 2005 through August 2007. The PPQC distributed the monthly reports by e- 6 mail and posted them on IndyMac's intranet site. Abernathy Complaint ¶T 19-20. 7 113. According to OTS, the problems were never addressed and Ernst 8 9 continued to certify IndyMac's financial statements and internal controls. Indeed, in its January 2007 examination OTS again found that the problems in the Conduit 10 Division remained uncorrected. This time, it referred the matter to IndyMac's 11 Board of Directors — Chaired by Perry — and required it to "provide actions taken 12 (1) to address the internal audit findings noted in the 2006 and 2007 internal audits, 13 (2) to improve the internal control environment, and (3) to ensure the Division 14 develops more robust, transparent management reports." OTS then required that 15 the following corrective action be taken: "Ensure the Conduit Division corrects the 16 internal audit findings noted in the last report and ensure that the Division is 17 operating in a strong internal control environment. In addition, the Division must 18 19 develop more robust, transparent management reports." Moreover, according to the Treasury Report, "IndyMac management" independently identified credit risks 20 in the Conduit Division in February 2007, including the need to implement tighter 21 seller approval and underwriting standards. 22 114. In its January 2007 examination, OTS also identified serious issues 23 with IndyMac's appraisals. OTS found that the borrowers, rather than the 24 mortgage originator, were paying the appraisers directly, which did not ensure 25 appraiser independence. In several of the loan files, the OTS appraiser noted 26 inadequate documentation. In the examiner workpapers, the OIG noted that the 27 examiner found appraisals where the property valuation was made without 28

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1 physical site inspection of the subject property or comparable properties, appraisals for which the appraiser was not located in the immediate area, appraisals where the 2 valuations were based on public data sources, and appraisals in which no photos of 3 the property or comparables were provided. 4 115. According to the Treasury Report, there is no evidence that IndyMac 5 ever adequately addressed these appraisal issues. Indeed, in early 2008, an 6 independent auditor was brought in to examine IndyMac's appraisal practices, 7 among other things. The primary finding of the firm, based on interviews with 8 9 retail and wholesale underwriters, was that IndyMac's appraisal policies were 10 deficient and underwriting was not centrally managed and was not consistent 11 across the Company. 116. The January 2007 examination also identified problems with 12 IndyMac's forecasting, ALL methodologies, and the classification of troubled 13 assets, requiring the following corrective actions to be taken by IndyMac: 14 • "Establish a policy and related procedures for the identification and 15 classification of troubled collateral dependent loans." 16 • "Refine current ALLL practices or introduce new methodologies to 17 take advantage of more robust data and improve forecasts. "5 18 • "Ensure the new earning forecasting process is implemented." 19 • "Develop and implement thrift-wide risk measures and sub-allocate, as 20 appropriate, to all individual business units." 21 117. Most, if not all, of these issues were never corrected. For example, in 22 January 2008 — a year after the January 2007 OTS examination — an independent 23 accounting firm brought in to examine IndyMac's financial reporting identified 24 persisting deficiencies in IndyMac's calculation of ALL. The independent 25 5 "ALLL" stands for "allowance for loan and lease losses." Because IndyMac did 26 not have substantial leasing activities, its financial statements generally refer to ALL. For purposes of this complaint, the acronyms "ALL" and "ALLL" are 27 interchangeable. 28

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1 accounting firm found that there were no internal controls in place to ensure that different divisions were applying the same standards, and no internal controls were 2 in place to ensure that they were using sound methodology in calculating ALL. 3 118. The January 2008 OTS Examination, discussed in greater detail 4 below, confirmed that serious internal control problems were never corrected — and 5 deteriorated even further — throughout 2007. The 2008 Examination Report 6 identified ten "matters requiring IndyMac Bank board attention," and 24 7 "corrective actions [needed] to be taken by IndyMac." Four of the ten matters 8 9 requiring IndyMac board attention related to internal controls, and at least ten of 10 the corrective actions related to internal controls problems that affected the 11 calculation of ALL. The OIG Report defines "matter requiring board attention" as

12 "[a] thrift practice noted during an OTS examination that deviates from sound governance, internal control, and risk management principles, and which may 13 14 adversely impact the bank's earnings or capital, risk profile, or reputation, if not addressed; or result in substantive noncompliance with laws and regulations, 15 internal policies or processes, OTS supervisory guidance, or conditions imposed in 16 writing in connection with the approval of any application or other request by the 17 institution." 18 119. IndyMac had also been aware of potential problems with the Home 19 Construction Lending ("HCL") Division well before the Class Period. In 2004, an 20 internal audit found several problems, including: (1) a $517 million bridge loan for 21 which an appraisal was not obtained to support collateral value; (2) loans with 22 expired insurance policies; (3) 22 loans that did not have evidence of building 23 permits on file; (4) 122 title endorsements checks for new liens or delinquent taxes 24 recorded against property that could affect IndyMac's lien position; and (5) money 25 provided to borrowers for 18 loans did not have supporting documentation for 26 these amounts as required with such documents as invoices or contracts. 27

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120. In the January 2007 examination, the OTS identified these same 1 problems with the HCL Division as persisting. According to its 2007 Report of 2 Examination, the OTS reported serious concerns in the underwriting standards of 3 the HCL Division and could not verify that management had determined that 4 sufficient funds existed to complete projects. Overall, the examiners noted a 5 number of findings related to the HCL Division portfolio. One of the OTS 6 examiners stated in an e-mail to another examiner, with regard to the HCL 7 Division, that the "appreciation in the market during the last 4 to 5 years was a 8 9 wonderful deodorant to any sloppy or loose underwriting or fund control 10 processes." OIG Report at 23-24. 121. As IndyMac's two most senior officers, Keys and Perry were aware of 11 each of these audits and reports. Both certified in six different class period SEC 12 filings that they were "responsible for establishing and maintaining internal 13 controls" and "ha[d] designed such internal controls to ensure that material 14 information relating to the company ... is made known to such officers by others 15 within those entities." As defined by SEC rules, "internal controls" include both 16 those related to financial reporting and those necessary to ensure disclosure of 17 material facts to investors. Moreover, Keys was responsible for and compensated 18 19 based on his management of all reports and audits relating in any way to internal controls. Each of the above reports and audits necessarily affected IndyMac's 20 financial reporting, as items such as loan loss allowances are necessarily based on 21 the collateral value of assets. 22 122. As discussed in more detail below, Ernst was also aware of each of 23 these audits and reports. Not only is investigation of such facts necessary for a 24 PCAOB-compliant audit, but Perry and Keys certified on six occasions that they 25 disclosed "all significant deficiencies in the design or operation of internal controls 26 which could adversely affect the issuer's ability to record, process, summarize, and 27 report financial data and have identified for the issuer's auditors any material 28

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weaknesses in internal controls." Moreover, with respect to the Conduit Division, 1 Ernst had itself identified internal control deficiencies therein. 2 3 VII. DEFENDANTS MISLEAD AND DEFRAUD INVESTORS A. Defendant Perry Misleads Investors Regarding IndyMac's Risk 4 Management, Underwriting, and Appraisal Practices 5 1. False and Misleading Statements Related to Underwriting, 6 Risk Management, and Appraisals 7 123. As alleged above, IndyMac systematically disregarded sound 8 underwriting practices, systematically overrode IndyMac's own underwriting 9 10 standards and risk control procedures, routinely approved loans based on fraud and 11 misrepresentations, engaged in fraud and misrepresentation in accepting mortgage applications, fired or forced out employees who attempted to sound the alarm 12 regarding IndyMac's underwriting practices, and otherwise fostered a corporate 13 culture that encouraged employees to push mortgages through without regard to 14 underwriting standards. 15 124. Notwithstanding these practices, defendant Perry repeatedly 16 represented to investors throughout the Class Period that IndyMac had "strong 17 underwriting guidelines," was a "prudent manager of risks," independently verified 18 appraisals and income for reasonableness, had "high standards . . . for credit 19 quality," and had put "risk management at the core of [IndyMac's] operations." 20 The false and misleading statements regarding the Bank's underwriting practices 21 and risk management are summarized below: 22 (a) "We manage [the] credit risk [associated with non- 23 performing assets] by implementing strong underwriting guidelines and 24 risk-based pricing." IndyMac March 1, 2007 Form 10-K and April 26, 25 2007 Form 10-Q (signed by Perry). 26 (b) "[W]e verify [our] appraisal[s], we review [our] appraisals. 27 We get not only a full appraisal but we do an automated appraisal in 28

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addition to it. We independently check their credit. We verify 1 employment. We verify their income and their assets and we check 2 their income for reasonableness. We do a lot of steps on those loans. 3 We think that's a prudent business for us." Statement by Perry, on 4 April 26, 2007, 1Q Earnings Call With Securities Analysts and 5 Investors. 6 (c) "We have made significant investments in our pre- ? production and post-production quality control processes to identify 8 potential issues that could cause repurchases. We believe that these 9 efforts have improved our production quality." IndyMac, April 26, 10 2007 Form 10-Q (signed by Perry). 11 (d) stating that the Company would "maintain our high 12 standards for customer service and credit quality." July 19, 2007 13 Posting on the IMBreport.com (quoting Perry). 14 (e) Touting "prudent underwriting practices" in the 15 Homebuilder Division. Statement by Perry, on July 31, 2007 2Q 2007 16 Earnings Call. 17 (f) "Our philosophy is to put risk management a the core of 18 our operations[.]" IndyMac July 31, 2007 Form 10-Q and November 6, 19 2007 10-Q (signed by Perry). 20 (g) Touting "prudent regulatory compliance and risk 21 management" and strong risk management practices. IndyMac 22 September 7, 2007 Press Release (quoting Perry). 23 (h) "I would say today 99% of our production is prior 24 approved, fully underwritten under the stringent underwriting 25 guidelines." Statement by Perry, on November 6, 2007 3Q 2007 26 Earnings Call. 27

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125. These statements were false and misleading for the reasons alleged in 1 ¶¶ 73-121 above. Throughout the Class Period, IndyMac had grossly deficient — 2 and in fact fraudulent — underwriting and risk management policies and practices. 3 IndyMac in fact applied loose or non-existent underwriting standards, overrode 4 decisions of quality control personnel, and had poor quality loans, as confirmed by 5 IndyMac's delinquency rates and massive repurchase demands. As Joanne Kim, 6 CEO of Wilshire Bancorp Inc., stated: "IndyMac was willing to buy anything." 7 126. IndyMac also made false and misleading statements relating 8 9 specifically to underwriting and credit quality of IndyMac's Homebuilder 10 Division, including the following: (a) "At December 31, 2006, non-performing loans for the 11 builder construction portfolio are at 0.78%.... We manage this credit 12 risk by implementing strong underwriting guidelines and risk-based 13 pricing. Our current weighted average loan-to-value ratio is 73%." 14 IndyMac 2006 Form 10-K, issued March 1, 2007. 15 (b) "The bulk of our subdivision construction business is a 16 very prudent business.... I think we clearly substantially tightened our 17 condo guidelines but I would say overall I am very pleased with our 18 underwriting and credit quality." Statement by Perry, on July 31, 2007 19 2Q 2007 Earnings Call. 20 (c) Purported good performance of builder construction 21 divisions is attributable in part to "prudent underwriting practices." 22 Statement by Perry, on July 31, 2007 2Q 2007 Earnings Call. 23 (d) "We've . . . done a great job in underwriting those 24 [subdivision construction] loans. It's just a really challenging cycle for 25 those homebuilders now." Statement by Perry, on November 6, 2007 26 Securities Analyst Conference Call. 27 28

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127. These statements were false and misleading for the reasons alleged in 1 Paragraphs 104-105, and 119-120, above. The underwriting on IndyMac's 2 Homebuilder Division loans was particularly rife with fraud and inadequate 3 4 controls, as confirmed by the Treasury Report. Indeed, six months after declaring 5 the Homebuilder Division to be a "very prudent business" for IndyMac, the 6 Company — in the wake of rising delinquencies and defaults — shut down the entire division. The Homebuilder Division is currently the target of an FBI investigation 7 and, as discussed above in ¶¶ 8-11, its former key officers are Defendants in a case 8 9 brought by the FDIC. 2. Defendant Perry Acted With Scienter 10 128. Perry made the above statements with scienter because he had actual 11 knowledge of IndyMac's deficient and fraudulent underwriting, risk management, 12 and appraisal policies. 13 129. In addition to the facts above which show the falsity of Perry's 14 statements (and thus also show his scienter in making those statements), numerous 15 additional facts support a strong inference of Perry's scienter. First, as 16 demonstrated above, Perry was personally involved in the fraud. As Leigh stated, 17 in 2006, Perry was aware of the preliminary report that Leigh had prepared 18 19 containing negative findings, including that 11 to 15 percent of all current loans had problems, far exceeding the industry norms. Leigh also stated that she 20 believes that Perry fired her and others because Perry and Minier sought to hide the 21 negative findings in her report from IndyMac's board, and the only way for them 22 to do that was to fire Leigh and other employees. "They did not want anything 23 found." Those actions are completely inconsistent with Perry's public statements 24 about the importance of risk management and sound loan underwriting. Perry also 25 made structural changes — such as the termination of senior compliance officers 26 and placing compliance under the control of central mortgage operations — that 27 were clearly intended to "neuter" the compliance department. 28

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130. Second, because IndyMac's underwriting guidelines directly affected 1 the value and credit quality of IndyMac's loans — and therefore were fundamental 2 to IndyMac's overall financial condition — IndyMac senior management, including 3 Perry, closely monitored and managed IndyMac's prime and subprime lending 4 underwriting guidelines and operations. 5 131. Third, Perry knew of the findings by IndyMac's internal audit team 6 concerning the home construction lending division in 2004, 2005, and 2006, 7 discussed in ¶ 119 above. Perry also knew of Ernst's concerns regarding internal 8 9 controls in the Conduit Division in 2006 (¶ 122), and the concerns reflected in the 10 OTS's January 2007 Report of Examination regarding IndyMac's appraisal

11 practices. ¶ 113. He also knew that these concerns remained uncorrected. As detailed in the FDIC Complaint, Perry also knew of the serious problems that 12 pervaded the Homebuilder Division. ¶ 96. In addition, as detailed in the 13 Abernathy Complaint, Perry and Keys knew the reasons for and numbers of 14 defective loans, and that the Conduit Division was responsible for many of them, 15 because the PPQC department issued detailed monthly reports with rates of 16 defects, including a chart that broke down the findings by business unit, and a 17 spreadsheet providing loan-by-loan detail, which were distributed by e-mail and 18 19 were posted internally on IndyMac's intranet. The PPQC reports stated, for example, that the Conduit Division had a loan defect rate of up to 30% from April 20 2005 through August 2007, and that 12% to 18% of a random sample of IndyMac 21 Bank's total loans contained misrepresentations which ranged from 12% to 18% 22 from January through August 2007. Abernathy Complaint T¶ 19-20. 23 132. According to the Treasury Report, in the beginning of 2007, Perry 24 "expressed concerns about the thrift's subprime portfolio in an e-mail message to 25 his executives that discussed the secondary market disruption." In the message, 26 Perry "stated that the thrift's financial condition was suffering from the effects of 27 its subprime loans and was in the process of structuring a transaction to sell 28

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1 approximately $1.1 billion of them." However, Perry also stated that "Wall Street had `pulled financing from investors."' The Treasury Report also stated that Perry 2 "said that the thrift also needed to revisit product guidelines in the high risk areas 3 such as subprime, fully financed mortgages, as well as the thrift's highest loan-to- 4 value (LTV) products and make those products `considerably more conservative."' 5 133. The claim and counterclaim in the actions between IndyMac and PMI, 6 a mortgage insurance company which insured many of IndyMac's mortgages, . 7 provide additional evidence that Defendants, including Perry, intentionally or with 8 9 deliberate recklessness disregarded the extent and severity of the defective 10 underwriting tainting IndyMac's loans, requiring increases to ALL, and exposing 11 IndyMac to serious undisclosed risk of loss. In 2008, IndyMac sued PMI for rescinding certain mortgage contracts in the action captioned IndyMac Federal 12 Bank, F.S.B. v. PMI Mortgage Ins. Co., N.D. Cal. C.A. No. 08-4303, September 13 121 2008. In its counterclaim against IndyMac (Docket No. 27 filed November 24, 14 2008) PMI alleged that between May and August 2007, IndyMac delivered 6,242 15 loans, with an aggregate value of over $500 million, to PMI, which would insure 16 payments on these loans following securitization. PMI determined that over 80% 17 of the loans delivered in this period contained material underwriting 18 deficiencies, and sought to rescind its insurance agreement. Counterclaim ¶¶ 4-7, 19 37. PMI informed IndyMac Bank of its findings by a letter to an IndyMac senior 20 officer dated December 4, 2007. The letter, from a PMI Managing Director, 21 stated: "as our account team has discussed with you, it is clear that the audit results 22 far exceed our tolerance for data and decision variances." Id. ¶ 40. 23 134. Given the dramatic effect that PMI's rescission, discussed above, 24 would have on .IndyMac, the facts described in the PMI lawsuits would necessarily 25 have been made known to Defendants and required a further adjustment to ALL. 26 135. At the very same time IndyMac was engaging in these deficient and 27 fraudulent underwriting practices, Perry was publicly stating that IndyMac was 28

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1 employing "prudent" risk management and strict underwriting guidelines. ¶124(e). Perry also insisted — falsely — that: "[W]e verify [our] appraisal[s], we review [our] 2 appraisals. We get not only a full appraisal but we do an automated appraisal in 3 4 addition to it. We independently check their credit. We verify employment. We verify their income and their assets and we check their income for reasonableness. 5 We do a lot of steps on those loans. We think that's a prudent business for us." 6 136. The foregoing paragraphs provide direct evidence of Perry's personal 7 involvement in directing the improper lending, appraisal, and underwriting 8 9 practices at IndyMac. Even apart from this direct evidence , the fraud and 10 misconduct was so pervasive at IndyMac that there is a strong inference that Perry 11 was aware of it. Perry was not a detached executive; instead, he was described by numerous witnesses as a "hands-on manager" who sometimes personally reviewed 12 mortgage applications. According to a former manager at IndyMac quoted in the 13 14 September 15, 2008 Los Angeles Business article, "[a]ll the strategic direction of IndyMac was Mike [Perry] dictating it." Indeed, he was the sole public face of the 15 company — answering virtually every question on Company earnings calls himself. 16 And IndyMac's own regulatory filings describe the broad scope of his duties. 17 Specifically, Perry was: 18 ...responsible for the overall direction and administration of all 19 programs and services provided by the Company and for ensuring that 20 all aspects of the Company's activities are conducted commensurate 21 with the best interests of shareholders, customers, employees, and other 22 key stakeholders. His responsibilities include: (i) setting the strategic 23 vision and establishing a strategic, financial and risk management plan 24 for the company, (ii) recruiting and retaining a senior management team 25 which has the talent and experience to execute the plan, (iii) monitoring 26 the Company's execution, financial and operating performance, (iv) 27 adapting the Company's strategic and execution plans based on 28

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Company performance and conditions in the mortgage market and U.S. 1 economy, and (v) managing all key activities related to IndyMac's 2 being a public corporation. He reports to the Board of Directors as the 3 highest ranking official of the Company. 4

5 Mr. Perry's responsibilities, as described above, are significantly 6 broader than any other Named Executive Officer at the Company. 7 8 See IndyMac's Proxy Statement dated March 24, 2008. 137. Defendant Perry himself, in the statements concerning underwriting 9 10 and appraisal practices quoted in this Complaint, represented to the investing public that he had personal knowledge of the practices he was discussing. 11 B. Ernst's Unqualified Opinions Regarding IndyMac's Internal 12 Controls Over Financial Reporting Were Materially Misstated 13 When Made 14 138. As set forth above, IndyMac repeatedly made exceptions to its 15 underwriting, appraisal, and lending guidelines in order to originate larger 16 mortgage volume. These practices, among others identified herein, evidence 17 significant deficiencies and material weaknesses in the Company's system of 18 19 internal controls and contributed to the improper reporting of financial results and performance data at all times throughout the Class Period. 20 139. Notwithstanding these material deficiencies, Ernst issued unqualified 21 opinions on IndyMac's 2006 Form 10-K and 2007 Form 10-K, falsely certifying 22 that IndyMac's financials, including reported ALL, complied with GAAP, and that 23 the Company's internal controls over financial reporting were effective. Ernst also 24 publicly stated in each of its opinions that it performed its audits and evaluations in 25 accordance with the standards of the PCAOB. 26

27

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1. Applicable Accounting Standards, the Definition of 1 "Material Weaknesses" in Internal Controls, and Ernst's 2 Duty to Independently Assess Internal Controls 3 140. Because underwriting is one of the major processes for a lending 4 institution, the controls related to underwriting are critically important to ensure 5 6 the material accuracy of the financial statements. Therefore, the auditor must focus on and continually monitor the internal controls for underwriting in assessing 7 and certifying the internal controls in its audit of the financial statements. 8 9 Applicable accounting standards and guidance make clear the interrelationship 10 between a lending institution's (1) adherence to established underwriting 11 guidelines, (2) internal controls surrounding both underwriting and the 12 computation of loan loss reserves, and (3) the accuracy of its financial statements. In fact, these three factors are inextricably linked, and are considered as such both 13 by auditors — who are required to consider the effectiveness of internal controls 14 over financial reporting in the area of credit losses for purposes of performing an 15 audit on the financial statements of a lender such as IndyMac — and by investors, 16 17 who understand and can reasonably expect an auditor's "clean" opinion to encompass, among other things, consideration of each of these three factors 18 19 sufficient to render an unqualified opinion regarding the material conformity of the institution's financial statements with GAAP. 20 141. For example, particular guidance available to and required to be 21 considered by Ernst for purposes of its audits of IndyMac included the AICPA 22 Audit and Accounting Guide for Depository and Lending Institutions: Banks and 23 Savings Institutions, Credit Unions, Finance Companies and Mortgage Companies 24 (with conforming changes as of May 1, 2006) (the "2006 AAG" or "AAG").6 25 Defendant Ernst was required to consider this guidance to ensure both that it had 26 6 27 The AICPA, along with the PCAOB, is the primary governing body for auditors and is responsible for the promulgation of auditing standards. 28

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performed its audits in accordance with GAAP and, ultimately, that such audits 1 would allow it to render an opinion regarding the material conformity of 2 IndyMac's financial statements, including the ALL, with GAAP. Loans are "the 3 most significant assets" of a bank and "generate the largest portion of revenues." 4 AAG 8.01. Therefore, to conduct a proper bank audit, the auditor must focus on 5 6 the bank's lending process, including the nature of the loan portfolio and underwriting quality, as well as other factors such as general economic conditions. 7 AAG 8.02. As IndyMac stated in its 2006 and 2007 Forms 10-K, the Company's 8 9 business is "primarily" focused "on single-family lending and the related 10 production and sale of loans." 142. The 2006 AAG confirms that because of the risk for errors or fraud in 11 financial statements of companies like IndyMac, whose major business was loans, 12 it is critical for the auditor to focus on internal controls and testing of the 13 underwriting process to be certain that the Company has established and followed 14 particular guidelines in the origination of loans, primarily to ensure the quality of 15 such loans. As the AAG states, "[elffective internal control over financial 16 reporting in this area should provide reasonable assurance that errors or fraud 17 in management's financial statement assertions about the loan portfolio — 18 including those due to the failure to execute lending transactions in accordance 19 with management's written lending policies — are prevented or detected. " (AAG 20 8.136). 21 143. As the 2006 AAG explains, an independent accountant can only 22 obtain a "sufficient understanding" of internal controls, including with respect to 23 underwriting and the allowance for loan losses, by performing procedures to 24 understand the Company's policies and practices: 25 AU § 319, as amended, requires that, in all audits, the independent 26 accountant obtain an understanding of each of the five components of 27 internal control (the control environment, risk assessment, control 28

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activities, information and communication, and monitoring) sufficient 1 to plan the audit. A sufficient understanding is obtained by performing 2 procedures to understand the design of policies and procedures relevant 3 to an audit of financial statements and determining whether they have 4 been placed in operation. The auditor is also required to assess control 5 risk for the relevant assertions embodied in the account balances, 6 transaction class, and disclosure components of the financial 7 statements. (AAG 9.49). 8 144. The 2006 AAG emphasizes the importance of effective internal 9 10 controls, including with respect to "the lending process" (i.e. underwriting and 11 appraisal practices): Effective internal control related to estimating the allowance for loan 12 losses should reduce the likelihood of material misstatement of the 13 allowance for loan losses. The independent accountant should obtain 14 an understanding of how management developed the allowance for loan 15 losses, how the process has changed from prior periods, and an 16 understanding of the institution's loan portfolio, lending process, loan 17 accounting policies, market focus, trade area, and other relevant 18 factors. (AAG 9.50). 19 145. As the 2006 AAG makes clear, and as Ernst was required to know, 20 underwriting and internal control failures at IndyMac had the potential to impact — 21 and in fact did impact — not only the calculation of ALL, but also the accuracy of 22 the financial statements overall: "Because compliance with a well-defined 23 lending policy is essential to an institution's asset quality, failure to follow that 24 policy could have a substantial impact on the reliability of financial statement 25 assertions." (AAG 9.51). 26 146. Because loans held for investment ("LHFI") were IndyMac's largest 27 asset, and the ALL was the primary means by which IndyMac could adjust the 28

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carrying value of those assets to reflect market conditions and expectations of 1 collectibility, it was critical for IndyMac and Ernst to ensure both: (1) that 2 underwriting controls were in place and being followed (because the effectiveness 3 of controls surrounding the underwriting process formed a baseline for assessing 4 the quality of loans in the LHFI portfolio); and (2) that internal controls 5 6 surrounding the actual computation of ALL were in place and being followed. 147. One of the substantive tests Ernst was required to perform to obtain 7 evidence about the effectiveness of internal controls over financial reporting in the 8 area of credit losses was to read minutes of meetings of the board or loan 9 10 committee for evidence that the board periodically reviewed and approved the ALL, to check whether it complied with GAAP, and to verify that it was based on 11 appropriate documentation. AAG 9.52. As discussed below in ¶ 204, for example, 12 IndyMac Audit Committee board minutes in December 2006 revealed that early 13 payment defaults were rising. 14 148. The 2006 AAG gives the following example of one way in which a 15 16 bank's failure to follow underwriting guidelines can result in greater credit risk, understated ALL, and misstatements in the bank's financial statements: 17 For example, authority limits established in management's written 18 underwriting policies are based in large part on (a) the knowledge and 19 skill of the reviewing loan officer or committee and (b) the credit risk 20 the institution is willing to assume on a particular type of loan. A loan 21 made for an amount in excess of an officer's limit, or for an 22 unauthorized loan type, would normally involve great amounts of credit 23 and other risks. Accordingly, management's financial statement 24 assertions about impairment and valuation of the loan portfolio, for 25 example, may be affected. (AAG 9.51). 26 149. The illustration cited in the 2006 AAG is just one example of how 27 underwriting failures and weak internal controls related to underwriting might 28

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1 impact the calculation of ALL and therefore the financial statements of an institution as a whole, including at IndyMac. Other documented violations of 2 underwriting policies at IndyMac — including, for example, pushing through loans 3 despite the borrowers' inability to pay, failing to obtain documentation evidencing 4 borrowers' income, and relying on inflated appraisals, among other violations — all 5 increased the risks relating to loan quality and collectibility within IndyMac's loan 6 portfolio. These risks — which were concealed from investors -- arose, in part, 7 because of deficiencies and material weaknesses in IndyMac's internal controls 8 9 surrounding its underwriting policies. 150. As discussed above, the 2006 AAG confirms that because of the risk 10 for errors or fraud in financial statements of companies like IndyMac, whose major 11 business was loans, it is critical for the auditor to focus on internal controls and 12 13 testing of the underwriting process to be certain that the Company has established and followed particular guidelines in the origination of loans, primarily to ensure 14 the quality of such loans. 15 151. Examples of typical internal control activities relating to financial 16 reporting of mortgage banking activities include use of a quality control function to 17 monitor underwriting and documentation practices. AAG 10.47. In addition, 18 19 AAG 9.59 emphasizes that Ernst was . required to consider reports of the Company's own independent loan review function or internal audit, such as the 20 PPQC reports, to identify poorly documented loans and other sources of risk in the 21 loans. 22 152. As discussed below, Ernst knew that the loan performance and quality 23 data supplied by IndyMac to calculate the ALL was unreliable. For example, as 24 the SEC alleged in the Abernathy Complaint, evidence of pervasive and systemic 25 defects in the underwriting process, including in borrower loan documents, was 26 reported in internal monthly reports issued by IndyMac's PPQC department. The 27 PPQC audited IndyMac Bank's loan production monthly and selected a 28

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statistically valid random sample of the Bank's total loan production. Abernathy 1 Complaint ¶¶ 16-19. The reports.were distributed throughout the Company by e- 2 mail and posted on IndyMac's intranet site. Id. ¶ 20. These reports were available 3 4 to Ernst. The reports revealed that the sample's "defect rate" ranged from 10% to 22% from September 2005 though August 2007, and that the Conduit Division had 5 a defect rate of up to 30% from April 2005 through August 2007; and that the 6 percentage of the Bank's loans that contained misrepresentations ranged from 12% 7 to 18% from January 2007 (when reporting of that statistic began) through August 8 9 2007. Id. T 19. Based on this evidence, Ernst had an obligation to view the loan 10 information with skepticism and collect its own evidence, and to independently 11 assess IndyMac's internal controls before certifying the Company's ALL. 153. Because Defendants failed to adequately increase the ALL in the face 12 of these increased risks and potential or probable losses, IndyMac's LHFI portfolio 13 14 was overstated, resulting in overstatements of the balance sheet and income statement. As set forth in detail below, in view of these and other known facts, 15 Ernst's unqualified opinions on IndyMac's 2006 and 2007 statements were 16 intentionally or deliberately recklessly false. 17 2. IndyMac's Internal Controls Were Not Effective and Ernst 18 Did Not Perform its Audits in Accordance with the 19 Standards of the PCAOB and GAAS 20 154. Recognizing the importance of reliable internal financial controls to 21 the accuracy of financial statements — and therefore to investors — Congress 22 enacted Section 404 of the Sarbanes-Oxley Act, requiring audits of internal 23 financial controls ("SOX 404"). SOX 404 requires external auditors such as Ernst 24 to audit and express an opinion on the effectiveness of their public company 25 clients' internal financial controls. Sarbanes-Oxley also requires public accounting 26 firms that audit public companies to register with the PCAOB and to adhere to 27 professional standards established by the PCAOB for audits of public companies. 28

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155. In order to effectively audit IndyMac's compliance with GAAP and 1 2 the adequacy of the Company's internal controls, Ernst was required to, but did not, follow applicable PCAOB and GAAS standards in evaluating, inter alia, 3 4 IndyMac's internal controls, including with respect to its adherence to underwriting guidelines, its reserving methodology, and its accounting for ALL 5 and Secondary Market, or "residual" Reserves. 6 156. Auditing Standards No. 2 and No. 5 were promulgated by the PCAOB 7 following passage of the Sarbanes-Oxley Act, and are binding on all registered 8 9 public accounting firms ("AS 2" and "AS 5"). AS 2 applies to audits for fiscal 10 years beginning on or after November 15, 2004, and AS 5 applies to audits for 11 fiscal years ending on or after November 15, 2007. Under AS 2 and AS 5, Ernst was required to complete a careful examination of IndyMac's underwriting 12 practices, sufficient to determine whether management's representations about 13 adherence to underwriting guidelines in the context of maintaining purportedly 14 effective controls over financial reporting were true or false. AS 2 provides that the 15 objective of an audit of internal control over financial reporting is to form an 16 opinion "as to whether management's assessment of the effectiveness of the 17 registrant's internal control over financial reporting is fairly stated in all material 18 19 respects." PCOAB's rulemaking in connection with AS 2 provides: "An auditing process restricted to evaluating what management has done would not provide the 20 auditor with a sufficiently high level of assurance that management's conclusion is 21 correct. The auditor needs to evaluate management's assessment process to be 22 satisfied that management has an appropriate basis for its conclusion. The auditor, 23 however, also needs to test the effectiveness of internal controls to be satisfied that 24 management's conclusion is correct, and therefore, fairly stated. Indeed... investors 25 expect the independent auditor to test whether the company's internal control over 26 financial reporting is effective, and Auditing Standard No. 2 requires the auditor to 27 do so." 28

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157. Similarly, PCOAB's rulemaking in connection with AS 5 makes clear 1 that Ernst could not simply rely on the assessment of internal controls reached and 2 communicated to it by IndyMac management or third parties, but was instead 3 required to conduct its own independent assessment of internal controls before it 4 could issue a "clean" opinion. According to AS 5: "The auditor is required to 5 6 provide an independent opinion on the effectiveness of the company's internal control over financial reporting.... The auditor cannot obtain sufficient evidence to 7 support an opinion on the effectiveness of internal controls based solely on 8 observation of or interaction with the company's controls. Rather, the auditor 9 10 needs to perform procedures such as inquiry, observation, and inspection of 11 documents, or walkthroughs, which consist of a combination of these procedures, in order to fully understand and identify the likely sources of potential 12 misstatements[.]" After, performing an independent analysis, an independent 13 auditor is not permitted to issue a clean opinion if any "material weaknesses" exist. 14 158. Ernst's unqualified opinions regarding the effectiveness of IndyMac's 15 system of internal controls were materially false and misleading. As set forth 16 herein, and as confirmed by numerous internal and external audit reports, OTS 17 reports, and the testimony of former IndyMac employees, IndyMac had materially 18 19 deficient internal controls in areas critical to financial reporting, most notably with respect to underwriting, IndyMac's ALL and Secondary Market Reserve 20 calculations, and particularly in the Conduit Division, HCL Division and 21 Homebuilding Division. 22 159. As discussed above, the quality of the loans originated by IndyMac, 23 and in particular the risk level of IndyMac's loans, was crucial to determining, 24 among other things, the calculation of the ALL and the Secondary Market 25 Reserves. The calculation of the ALL and Secondary Market Reserves was, in 26 turn, critical to the accuracy of IndyMac's financial statements. However, as set 27 forth below at ¶¶ 269-278, IndyMac failed to properly provision against the 28

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Company's incurred and probable losses because, among other things, it did not 1 take into account the Company's ineffective risk management, unreliable appraisal 2 practices, high-risk loan products, and deteriorating underwriting practices. These 3 failures resulted in the Company's financial statements being materially misstated. 4 160. An audit performed in accordance with the standards of GAAS and 5 6 the PCAOB would need to adequately consider and address IndyMac's internal controls relating to these processes. Had Ernst complied with GAAS and PCOAB 7 standards, it should have uncovered the material understatement of, and errors in, 8 9 IndyMac's ALL and Secondary Market Reserve and the material weaknesses of 10 IndyMac's related internal controls at the time of its 2006 and 2007 audits. Ernst's audits either failed to detect this critical information, or Ernst did in fact obtain this 11 critical information but then did nothing with it, in violation of applicable 12 accounting standards. In other words, had Ernst complied with GAAS and the 13 standards of the PCAOB, the only reasonable professional conclusions it could 14 15 have drawn were that (1) IndyMac's reported ALL and Secondary Market Reserves were insufficient and that the Company had failed to account for, inter 16 alia, the high-risk, low-quality loans it originated, bought, and/or sold, in violation 17 of GAAP; and (2) that IndyMac's internal controls over financial reporting were so 18 ineffective that the Company'sCo financial statements were not fairly presented in 19 accordance with GAAP. 20 161. For example, as part of its audit planning, as well as its required 21 assessment and testing of internal controls, Ernst was required by GAAS and 22 PCOAB standards, but either failed to test on a sufficient basis, or recklessly 23 disregarded the need to do so, to determine whether IndyMac's mortgage loans 24 were being originated both (1) using a system of internal controls and (2) in 25 material compliance with the Company's established underwriting standards. As 26 set forth above, IndyMac management's claim that IndyMac adhered to its 27 published underwriting guidelines was false, and this lack of compliance with and 28

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1 numerous exceptions to underwriting guidelines was one of the major reasons why IndyMac's loans were experiencing increasing delinquencies and defaults 2 throughout 2006 and 2007 and at the time of Ernst's audits. 3 162. Because, as alleged in detail below in ¶¶ 254-333, Defendants' 4 wrongdoing resulted in a material understatement of the ALL and Secondary 5 Market Reserves, it is clear that a "material weakness" existed within the realm of 6 the calculation of those amounts, whether referred to as such or not by Ernst. AS 7 2, Paragraph 10, which applied to Ernst's 2006 audit, defines a "material 8 9 weakness" as: "a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the 10 11 annual or interim financial statements will not be prevented or detected." In promulgating AS 5 in 2007, the PCAOB adopted a new definition of "material 12 weakness," which is the same definition used by the SEC in 17 C.F.R. § 210.1-02. 13 This definition, which applied to Ernst's 2007 audit, provides that: "[t]he term 14 material weakness means a deficiency, or a combination. of deficiencies, in internal 15 control over financial reporting... such that there is a reasonable possibility that a 16 material misstatement of the registrant's annual or interim financial statements will 17 not be prevented or detected on a timely basis." 18 3. Ernst Acted with Scienter when it Certified that Internal 19 Controls Were Effective in the 200610-K Signed on 20 February 26, 2007 21 163. Ernst signed its 2006 audit opinion on February 26, 2007. Ernst 22 certified IndyMac's internal controls, stating: "In our opinion, management's 23 assessment that IndyMac Bancorp, Inc. maintained effective internal control over 24 financial reporting as of December 31, 2006, is fairly stated, in all material 25 respects, based on the COSO criteria. Also, in our opinion, IndyMac Bancorp, 26 Inc. maintained, in all material respects, effective internal control over financial 27 reporting as of December 31, 2006, based on the COSO criteria." This opinion 28

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was materially false and misleading. By that time, Ernst had actual knowledge of 1 material weaknesses in IndyMac's internal controls. 2 164. The most glaring example was the Conduit division, which originated 3 33% of all of IndyMac's loans in 2006. IndyMac internal audit teams identified 4 serious problems with the Conduit Division in both 2005 and 2006. More 5 importantly, Ernst itself reported on financial control deficiencies stemming from 6 the Conduit Division in 2006. Ernst found that the Division did not have an 7 effective process or system in place to oversee the execution of its trading 8 9 activities or for monitoring the exposure to sellers. At the IndyMac board 10 meeting on December 5, 2006, a director noted that loans originated through the Conduit Division were especially likely to lead to early payment defaults, which 11 would require IndyMac to repurchase loans it had sold to third parties at a loss. 12 Assuming that it complied with applicable audit standards, Ernst reviewed the 13 minutes of this meeting. Despite having actual knowledge of the material 14 weaknesses in the internal controls of that division, Ernst issued an unqualified 15 opinion that the internal controls were effective. The Conduit Division ultimately 16 accounted for a material part of IndyMac's losses in 2007. 17 165. The material weaknesses in the Conduit Division were not corrected 18 19 by the time Ernst issued its March 1, 2007 opinion. OTS began a comprehensive examination of IndyMac on January 8, 2007, and completed that investigation on 20 March 21, 2007. The OTS found that the problems in the Conduit Division 21 remained uncorrected, and referred the matter to IndyMac's Board of Directors for 22 corrective action. With respect to the Conduit Division, the OTS required the 23 Board to "provide actions taken (1) to address the internal audit findings noted in 24 the 2006 and 2007 internal audits, (2) to improve the internal control environment, 25 and (3) to ensure the Division develops more robust, transparent management 26 reports." The OTS also required IndyMac to take certain "corrective actions" for 27 the Conduit Division, including: "Ensure the Conduit Division corrects the internal 28

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1 audit findings noted in the last report and ensure that the Division is operating in a strong internal control environment." Though these findings were issued after 2 Ernst's March 1, 2007 opinion, they confirm that Ernst knew that the problems that 3 4 Ernst itself had previously identified had not gone corrected. Indeed, the Treasury Report confirms that the problems went uncorrected until November 2007, when 5 6 the Conduit Division was closed. Moreover, Ernst was required to make inquiries to OTS examiners even "if the examination [was] still in progress," "or [if] their 7 8 examination report [was] still pending. " 2006 AAG 5.180. 166. Moreover, even if the material weaknesses had been corrected by 9 10 March 1, 2007 — which they were not — Ernst still had the duty to disclose them in 11 its audit opinion because the loans originated in the Conduit division in 2006 remained part of the Company's portfolio and would — and did — affect IndyMac's 12 losses throughout the following year. Indeed, despite being closed in Fall 2007, 13 the Conduit Division would ultimately account for 18% of IndyMac's net losses in 14 2007. In short, Ernst had actual knowledge of serious unresolved deficiencies in 15 16 the internal controls of the Conduit division as of March 1, 2007 and nonetheless certified the effectiveness of those internal controls. Ernst's certification was false 17 and, at the very least, deliberately reckless. 18 167. In addition, as alleged by the SEC in the Abernathy Complaint, red 19 flags of material weaknesses in IndyMac's internal controls were demonstrated by 20 the evidence of pervasive fraud in borrower loan documents in internal monthly 21 reports issued by IndyMac's PPQC department through August 2007. The PPQC 22 department performed monthly quality control audits of the Bank's total loan 23 production, which were distributed throughout the Company by e-mail and posted 24 on IndyMac's intranet site. Abernathy Complaint T 20. These reports were thus 25 26 available to Ernst. The reports revealed that the loan sample's "defect rate" ranged from 10% to 22% from September 2005 though August 2007, and that the Conduit 27 Division had a defect rate of up to 30% from April 2005 through August 2007; and 28

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1 that the percentage of the Bank's loans that contained misrepresentations ranged from 12% to 18% from January 2007 (when reporting of that statistic began) 2 through August 2007. Id. ¶ 19. Based on this evidence, Ernst had an obligation to 3 view the loan information with skepticism and collect its own evidence, and to 4 independently assess IndyMac's internal controls before certifying the Company's 5 ALL. 6 4. Ernst Acted with Scienter when it Certified that Internal 7 Controls Were Effective in the 200710-K Signed on 8 February 28, 2008 9 168. Ernst certified the effectiveness of the internal controls in IndyMac's 10 11 2007 10-K on February 28, 2008, stating: "In our opinion, IndyMac Bancorp, Inc. maintained, in all material respects, effective internal control over financial 12 reporting as of December 31, 2007, based on the COSO criteria." This opinion 13 was materially false and misleading. By this time, Ernst had received the final 14 results of the 2007 OTS Examination, finding that the problems in the Conduit 15 Division remained uncorrected. Perry's announcement of the planned closure of 16 the Conduit Division on November 6, 2007 9 did not "cure" the problems that 17 IndyMac suffered as a result of that division's severe internal control problems 18 because those assets remained on IndyMac's books and needed to be accounted for 19 in IndyMac's reserves. 20 169. Further, by the time Ernst issued its February 28, 2008 certification, 21 other internal control deficiencies had been identified and — assuming Ernst 22 complied with audit standards — brought to Ernst's attention, including: 23 • The findings by the OTS in the 2007 examination that there were 24 serious deficiencies in IndyMac's appraisal practices and that IndyMac 25 needed to refine its ALLL practices so as not to rely on historical 26 models; 27

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• The findings of an independent auditor in early 2008 that IndyMac's 1 appraisal policies were deficient and underwriting was not centrally 2 managed and was not consistent across the Company; 3 170. The January 2008 findings of a second independent auditor concluded 4 that no internal controls were in place to ensure that different divisions were 5 applying the same ALL standards and that no internal controls were in place to 6 ensure that they were using sound methodology in calculating ALL. Moreover, as 7 discussed above, red flags evidencing the material weaknesses in IndyMac's 8 internal controls were found in internal monthly reports issued by IndyMac's 9 10 PPQC department through August 2007. The PPQC department performed 11 monthly quality control audits of the Bank's total loan production, which were distributed throughout the Company by e-mail and posted on IndyMac's intranet 12 site. Abernathy Complaint ¶ 20. These reports were available to Ernst. The 13 reports revealed that the sampled loans' "defect rate" ranged from 10% to 22% 14 from September 2005 though August 2007, and that the Conduit Division had a 15 defect rate of up to 30% from April 2005 through August 2007, and that 12% to 16 18% of the random sample of IndyMac Bank's loans contained misrepresentations 17 from January 2007 (when reporting of that statistic began) through August 2007. 18 Id. ¶ 19. Based on this evidence, Ernst had an obligation to view the loan 19 information with skepticism and collect its own evidence, and to independently 20 assess IndyMac's internal controls before certifying the Company's ALL. 21 171. In light of these facts, Ernst's unqualified February 28, 2008 opinion 22 regarding the effectiveness of IndyMac's internal controls was materially false and 23 misleading. 24

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C. On February 12, 2008, Defendants Perry and Keys Mislead 1 Investors Regarding IndyMac's Dealings With the Office of Thrift 2 Supervision and the Soundness of the Company 3 1. OTS Initiates Its Review of IndyMac Four Months Early 4 and Issues an Initial Ratings Downgrade on January 17, 5 2008 6 172. As indicated above, IndyMac Bank was regulated by OTS. This 7 supervision was critical to investors, who relied on OTS to ensure that IndyMac 8 was properly valuing assets and liabilities and ensuring that the Company remained 9 10 "well-capitalized." As Roth Capital Partners observed in a May 1, 2007 analyst 11 report, "the benefit of neither the company's access to the [Federal Home Loan 12 Bank] system or its supervision by the OTS should be underestimated in our opinion." Thus, investors evaluating the health of the company relied heavily upon 13 the views of and actions taken by OTS. 14 173. According to the OTS Fact Sheet on IndyMac, the OTS became 15 concerned with IndyMac's financial condition by November 2007. According to 16 the OTS Fact Sheet, IndyMac changed its business model in November 2007 to 17 focus on originating agency-eligible loans "[i]n response to market conditions and 18 OTS concerns." 19 174. As set forth in the Trustee Complaint, by November 2007, senior 20 management became aware that OTS intended to downgrade IndyMac's composite 21 CAMELS rating from a "2" to a "3." In accordance with OTS's enforcement 22 guidance, there is the presumption that formal enforcement action will be taken for 23 an institution with a composite rating of "3." Furthermore, as early as November 24 2007, the OTS recommended to senior management that, based on the Bank's 25 capital ratios, IndyMac needed to raise significant outside capital. Thus, no later 26 than November 2007, both Perry and Keys were aware of the OTS' serious 27 28

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1 concerns about IndyMac and its precarious position, and any statements to the contrary were false and misleading. 2 175. On January 7, 2008, OTS began an examination of IndyMac "four 3 months ahead of schedule due to concerns the agency noted through its off-site 4 monitoring and meetings with management." See id. According to OTS 5 spokesman William Ruberry, OTS also "called in the FDIC with us early on in the 6 process." The Treasury Report confirms that OTS contacted FDIC on 7 December 20, 2007 "because of IndyMac's deteriorating position." 8 176. Ten days after initiating the exam, on January 17, 2008, OTS 9 10 "[i]ssued initial ratings downgrades based on the off-site monitoring and the initial 11 findings of the regular examination." Specifically, OTS issued a letter to IndyMac's board of directors, chairman, and CEO, stating that the bank's 12 composite CAMELS rating was downgraded from a 2 to a 3, effective December 13 31, 2007. The Asset Quality and Earnings component ratings were adjusted from a 14 2 to a 4.' Within six months of beginning its examination, the OTS repeatedly 15 downgraded the Bank's CAMELS ratings, and even sought a consent order to 16 address the Bank's unsafe and unsound banking practices. 17 177. The Treasury Report indicates that the severity of the downgrade of 18 the critical composite CAMELS rating from a 2 to a 3 on January 17, 2008, would 19 almost certainly trigger a formal enforcement action by the OTS under OTS's 20 enforcement guidelines. Thus, as of at least November 2007, and certainly by 21 January 17, 2008, Perry and Keys knew that OTS had serious concerns about, 22 among other issues, the Bank's capital adequacy and that it was virtually certain 23 that a formal enforcement action would be taken. 24

25 7 A "4" is the second lowest rating. According to the FDIC Manual, an Asset Quality rating of "4" is "assigned to financial institutions with deficient asset 26 quality or credit administration practices." This means that "the levels of risk and 27 problem assets are significant, inadequately controlled, and subject the financial institution to potential losses that, if left unchecked, may threaten its viability." 28

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178. As a result of the examination commencing January 7, 2008, OTS 1 identified and enumerated ten different matters that required the attention of 2 IndyMac's Board of Directors, chaired by Perry, including: 3 • G) "Return the Bank's capital ratios to a level that supports its 4 risk profile." 5 • (ii) "Provide the OTS with a forecast that includes a range of 6 capital necessary to achieve and maintain sufficient capital 7 ratios until implementation of the new strategic plan can 8 provide income at a level that will support the Bank 9 operations." 10 • (iii) "Ensure that liquidity strategies are in place to manage the 11 Bank's inability to access high-rate brokered deposits, and if 12 additional restrictions are placed on Federal Home Loan Bank 13 Board (FHLB) and Federal Reserve Bank (FRB) borrowing 14 limits." 15 • (iv) "Develop a clear strategy including scripts for media and 16 customer inquiries to minimize effects of public disclosure of 17 capital position and potential run on deposits." 18 • (v) "Ensure that timely valuations are obtained for problem 19 loans and that sufficient adjustment is made to address 20 declining real estate values." 21 • (vi) "Provide the OTS with a detailed plan for reducing the 22 level of classified and non-performing assets." 23 • (vii) "Provide OTS with a detailed business plan and budget 24 supporting the new Government Sponsored Enterprise Business 25 oriented business model, or any alternative business strategy." 26

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• (viii) "Ensure that all significant risks are identified, quantified, 1 monitored and controlled to preserve the safety and soundness 2 of the institution." 3 • (ix) "Ensure adequate resources are available to provide 4 support and documentation for assumptions used in risk 5 management models, valuation models, and information 6 submitted to OTS for the Thrift Financial Report." 7 179. OTS also identified twenty-four different "corrective actions to be 8 taken by IndyMac," including: 9 • "Develop a contingency plan to ensure uninterrupted funding 10 G) should the bank be unable to access broker deposits." 11 • (ii) "Develop plans for responding to media and customer 12 inquiries regarding the Bank's inability to meet funding 13 obligations." 14 • (iii) "Augment capital to ensure that it supports the Bank's risk 15 profile." 16 • (iv) "Ensure that timely valuations are obtained for problem 17 loans and that sufficient adjustment is made to address declining 18 real estate values." 1.9 • (v) "Enhance the forecasting process to include worst case 20 scenarios and contingency plans." 21 • (vi) "Ensure adequate resources are available to provide support 22 and documentation for assumptions used in risk management 23 models, valuation models, and information submitted to OTS 24 for the Thrift Financial Report." 25 180. Thus, at least by November 2007, and at the very latest by the end of 26 January 2008, IndyMac — including its two most senior officers, Perry and Keys — 27 28

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1 were well aware of the dire financial position of IndyMac and the OTS's serious concerns about IndyMac's viability. 2 2. Perry, Keys, and other IndyMac Officials Internally Discuss 3 the Dire Financial Condition of IndyMac 4 181. By January 2008, IndyMac's dire financial condition was the 5 primary topic of discussion at IndyMac board meetings. At the January 9, 6 2008 board meeting, Perry warned the Board that IndyMac could not count 7 on raising any capital due, in part, to the poor market performance of 8 IndyMac's stock. FDIC Complaint ¶ 74(a). Also at this meeting, the Board 9 discussed the risk of a run on the bank. 10 182. On or around February 8, 2008, Perry described IndyMac to an 11 outside investor as "literally fighting for" its life. Id. T 74(b). That same 12 day, IndyMac's senior management told the Board that there was "a very 13 real risk that the OTS could soon pressure the Bank to raise dilutive capital." 14 Id. ¶ 137(c). 15 183. By March 2008, the Bank, at the OTS's suggestion, and in 16 recognition of its precarious state, began consideration of a "good bankibad 17 bank" strategy and "what happens" to IndyMac's senior managers if 18 IndyMac failed. Id. ¶ 74. 19 3. Perry and Keys Make False and Misleading Statements 20 Regarding IndyMac's Dealings with OTS and IndyMac's 21 Financial Condition Following the Commencement of the 22 January 2008 Emergency Examination. 23 184. At the February 12, 2008 Fourth Quarter 2007 Earnings 24 Conference Call, Perry was questioned by a securities analyst regarding regulatory 25 actions that might be taken against IndyMac: 26 Michael Rogers, Conning Assessment Management, Analyst: . . . 27 For the regulatory perspective, do you see the tenor of regulation and 28

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the scrutiny and the potential regulatory actions that your regulator 1 could take, do you see that being maybe more severe going forward? 2 Are they - any sense that they might require some more stressful 3 reserve additions? 4 Defendant Perry: I don't think so, on the strip (sic) more stressful 5 reserve additions. I think we've had - we worked really hard over the 6 years to build a very strong, positive and open relationship with our 7 regulators... . 8 I think they have complimented us on our nimbleness in terms of our 9 ability to change our business model, okay? Certainly, they're 10 concerned about the whole industry, what regulator wouldn't be, given 11 what has gone on in the whole financial services sector. And certainly, 12 they're more concerned about entities that are more susceptible to the 13 housing market, like IndyMac. And I think that, given that, that we 14 continue to have a positive relationship with them, they haven't asked 15 us to do anything that -- they haven't asked us to do anything.... So, 16 I feel like they think we're doing a pretty good job managing through 17 this crisis period.... I don't think they're going to have concerns 18 about our reserves (emphasis added). 19 185. Perry's response was materially false and misleading. Perry knew, as 20 early as November 2007, that OTS was commencing, four months early, an 21 investigation into IndyMac, and intended to downgrade the Bank's CAMELS 22 rating, and also knew that the OTS had informed senior management, including 23 Perry, that based on OTS' serious concerns about the Bank's capital adequacy, 24 OTS concluded that IndyMac needed to raise significant outside capital. 25 186. As OTS Director John M. Reich would later state regarding the 26 examination, "[t]he OTS had significant concerns with the bank's funding strategy, 27 had directed appropriate changes and was finalizing a new set of enforcement 28

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actions to address its numerous problems. IndyMac was actively seeking to 1 arrange a significant capital infusion or find a buyer." As described above, the 2 "matters requiring IndyMac board attention" and the "corrective actions to be 3 4 taken" were numerous and serious. In addition, OTS had raised concerns regarding the Conduit Division in the January 7, 2007 inspection and required 5 numerous corrective actions. 6 187. In light of these facts — none of which were disclosed to investors 7 during the Class Period — Perry's statements that (a) he did not think the OTS 8 9 would require more stressful reserve additions; (b) OTS had not "asked us to do 10 anything"; (c) OTS "think[s] we're doing a pretty good job managing through this crisis period"; and (d) "I don't think they're going to have concerns about our 11 reserves," were all materially false and misleading. They were intended to, and 12 13 did, convey the materially false impression that OTS was somehow satisfied with IndyMac's financial condition and had vouched for IndyMac's viability, when in 14 fact precisely the opposite was true. 15 188. Also on February 12, 2008, Keys and Perry signed and filed an 8-K 16 reassuring investors worried about the financial condition of the Company. In that 17 filing, Keys and Perry stated that "We remain in a fundamentally sound financial 18 position.... We believe we can maintain our `well-capitalized' capital ratios 19 even under worsening industry conditions." This statement was made four days 20 after Perry had privately described IndyMac as "literally fighting for its life," and a 21 month after the IndyMac board had discussed the likelihood of a run on the bank 22 and the inability to raise capital. 23 189. These statements were false and misleading in light of the drastic 24 actions taken by OTS and FDIC a month earlier. OTS had just initiated a review 25 four months ahead of schedule, which ultimately required board response on issues 26 such as "[d]evelop a clear strategy including scripts for media and customer 27 inquiries to minimize effects of public disclosure of capital position and potential 28

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1 run on deposits" and "[e]nsure that liquidity strategies are in place to manage the 2 Bank's inability to access high-rate brokered deposits." Perry and Keys did not believe their statement that IndyMac was in a "fundamentally sound financial 3 4 position," and, even if they did, it was still misleading because it failed to disclose known facts tending to seriously undermine the accuracy of those statements. 5 4. Perry and Keys Made the Foregoing Statements With 6 Scienter 7 190. Perry and Keys made the foregoing statements with scienter because 8 they had actual knowledge of OTS's actions and serious concerns about IndyMac, 9 10 including concerns with the Bank's capital adequacy and high concentration of 11 risky assets. Perry, as IndyMac's controlling officer, was the principal contact between IndyMac and the OTS. As Perry told investors on February 12, 2008: 12 "throughout this whole crisis ... I probably send [our regulators] a note a day, 13 okay." As discussed in the 2007 Proxy, Keys was responsible for all audit findings, 14 and he and Perry were jointly responsible for reviewing and certifying IndyMac's 15 internal controls (which are necessarily implicated by the OTS findings). 16 191. As alleged in the Trustee Complaint, and as discussed above, Perry 17 was aware, as early as November 2007, of the OTS' concerns about IndyMac's 18 extremely weak financial condition, and its intention to downgrade IndyMac's 19 CAMELS ratings. Perry and Keys were aware that regulators had initiated an 20 examination four months ahead of schedule due to concerns specific to IndyMac. 21 They also knew that, on January 17, 2008, OTS issued a letter notifying IndyMac's 22 board of directors, chairman, and CEO that the Bank's composite CAMELS rating 23 was downgraded from a 2 to a 3, and its asset quality rating was downgraded from 24 2 to 4. In light of these facts, Perry's and Keys' February 12, 2008 statements — 25 such as that OTS "thinks we're doing pretty good job managing through this crisis 26 period" — were knowingly false. Indeed, OTS examiners believed that IndyMac 27 investors were being so misled by such statements that, in April 2008, one of them 28

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recommended that OTS "should publicly disclose IndyMac's poor earnings 1 position to prevent any liability to investors who had the potential to lose money 2 should the institution fail." 3 D. Defendants Perry and Keys Make Misleading Statements About 4 IndyMac's Liquidity During the Class Period 5 1. False Statements on Liquidity 6 192. During the Class Period, Defendants Perry and Keys made numerous 7 false statements touting IndyMac's supposedly "tremendous" and "strong" 8 liquidity and "strong capital position" while in the possession of evidence clearly 9 10 showing that IndyMac was under extreme financial distress, and that its survival 11 was seriously in jeopardy. Specifically, Perry and/or Keys made the following false and misleading statements: 12 a) "You know, we have tremendous liquidity.... So, you know, the 13 bottom line is I think we have a very strong and secure funding source and 14 tremendous liquidity which I think, when you combine strong capital position with 15 strong liquidity, that's what gets you through these cycles in the mortgage market." 16 Statement of Perry, on July 31, 2007 2Q 2007 Earnings Call. 17 b) "[W]e have very strong liquidity, a good amount of excess 18 capital and there are no realistic scenarios that I can foresee that would impair 19 IndyMac's viability[.]" August 2, 2007 posting on IMBreport.com (the "IMB 20 Blog") (quoting Perry). 21 c) Downplaying liquidity risks as "about as close to none as you 22 could have." Statement of Perry, at September 7, 2007 "Investor Day" 23 Conference. 24 d) Assuring investors that "our liquidity is at an all-time high," 25 and bragging that "we have very strong capital, reserves and liquidity to weather 26 the current storm in our industry." November 6, 2007 posting on the IMB Blog 27 (quoting Perry). 28

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e) Stating that and that "we are considered `well-capitalized' by 1 regulatory standards" and that "[w]e ... are confident that our liquidity position 2 3 will remain strong going forward." November 6, 2007 posting on the IMB Blog (quoting Perry). 4 f) Reassuring investors that "[l]ong term, with our strong capital, 5 reserves, and liquidity and with the great team we have in place, there is no doubt 6 that we will be a mortgage industry survivor[.]"November 6, 2007 posting on the 7 IMB Blog (quoting Perry). 8 g) "We remain in a fundamentally sound financial position... We 9 believe we can maintain our `well-capitalized' capital rations [sic] even under 10 worsening, industry conditions.... We still have a solid cushion above the well- 11 capitalized ratios." February 12, 2008 Form 8-K (signed by Perry and Keys) and 12 February 12, 2008 Annual Shareholder Letter (signed by Perry). 13 h) "We currently believe our liquidity level is sufficient to satisfy 14 our operating requirements and meet our obligations and commitments in a timely 15 and cost effective manner." February 29, 2008 Form 10-K (signed by Perry and 16 Keys). 17 i) "As a result of our thrift structure and strong capital and 18 liquidity positions, we were not forced to sell assets at liquidation prices and our 19 [loan] funding capacity was not materially impacted." February 29, 2008 Form 10- 20 K (signed by Perry and Keys). 21 j) "We may be required to raise capital at terms that are materially 22 adverse to shareholders." "While we currently have regulatory capital ratios in 23 excess of the `well-capitalized' requirement and have implemented a plan to 24 reduce our balance sheet and increase our capital ratios, there can be no assurance 25 that we will not suffer material losses or that our plans to reduce the balance sheet 26 27 will succeed. In those circumstances, we may be required to seek additional regulatory capital to maintain our capital ratios at the `well-capitalized' level. 28

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1 Such capital raising could be at terms that are very dilutive to existing shareholders..." February 29, 2008 Form 10-K (signed by Perry and Keys). 2 (Emphasis added) 3 k) Issuing prospectuses to raise capital from investors through 4 IndyMac's DSPP beginning February 26, 2008. These prospectuses stated that 5 IndyMac "intend[ed] to use the net proceeds from [the offering] for general 6 corporate purposes, including investment in our subsidiaries." These prospectuses 7 8 also incorporated IndyMac's SEC filings, which contained statements assuring 9 investors of IndyMac's strong capital and liquidity positions. DSPP Prospectuses 10 for sales of IndyMac common stock beginning February 26, 2008, including April 11 3, 2008 and May 2, 2008 DSPP Prospectuses, pursuant to June 30, 2006 Form S-3 shelf registration statement signed by Perry and Keys. 12 2. The Truth About IndyMac's Grave and Incurable Liquidity 13 Crisis 14 193. On July 11, 2008, OTS placed IndyMac into receivership, formed a 15 newly chartered thrift (IndyMac Federal Bank, FSB), and named the FDIC as 16 conservator. On July 31, 2008, IndyMac Bancorp filed for protection under the 17 Chapter 7 liquidation provisions of the bankruptcy laws. The estimated loss to the 18 FDIC from the failure of IndyMac is $12.75 billion. 19 194. The public did not learn there was a significant risk that IndyMac 20 would be unable to continue as a going concern until May 12, 2008, the close of 21 the Class Period, when the stock price fell 32%. 22 195. On May 12, 2008, Perry revealed for the first time that, contrary to his 23 prior representations, IndyMac might not be able to continue as a going concern 24 because it faced a grave and incurable liquidity crisis. Specifically, Perry admitted 25 that "our capital ratios have clearly been depleted," and "clearly, there are 26 scenarios in this environment where we could not be well capitalized and end up 27 being [in]adequately capitalized for a short period of time." 28

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196. Also on May 12, 2008, in a small note in the "Capital" section of what 1 would become IndyMac's last 10-Q released before receivership, the Company 2 revealed that it was no longer a well-capitalized institution and that it was headed 3 for insolvency. Specifically, IndyMac reported that during April 2008, Moody's 4 and Standard & Poor's downgraded the ratings on a large number of mortgage- s 6 backed security bonds, including $160 million of those issued by IndyMac and which the Bank retained in its portfolio. IndyMac admitted that these downgrades 7 would have negatively impacted the Company's risk-based capital ratio as of June 8 30, 2008, and further revealed that had these lowered ratings been in effect at 9 10 March 31, 2008, the Company's total risk-based capital would have been 9.27%. 11 IndyMac warned that if its regulators found its capital position to have fallen below well-capitalized (i.e. a minimum 10% risk-based capital ratio) to "adequately 12 capitalized" (8-10% risk-based capital ratio), the Bank might no longer be able to 13 use brokered deposits as a source of funds. The Bank further revealed that if its 14 level of deposit liquidity was reduced in this way, the Bank anticipated that it 15 16 would reduce its assets and, most likely, curtail its lending activities. 197. According to IndyMac's third quarter Form 10-Q issued on May 12, 17 2008, the Bank's risk-based capital ratio had dropped to 10.26% as of March 31, 18 19 from 10.81% the previous quarter. This ratio, which factors in asset quality and loan loss reserve coverage, must be at least 10% for an institution to be "well- 20 capitalized" under regulatory guidelines. IndyMac reported in the 10-Q that the 21 Bank's risk-based capital was only $47 million above the minimum required for 22 this 10% mark. But it concealed the fact that, as explained below, some of that 23 $47 million was actually fictional, the result of an improper, backdated $18 million 24 contribution to capital from IndyMac's parent company. As set forth below, had 25 Ernst not allowed this improper, retroactive contribution to capital, IndyMac would 26 have been forced to report that its capital had already slipped below the minimum 27 level that regulators require for classifying banks as "well-capitalized," thus 28

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1 putting $6.8 billion of brokered deposits -- or 37% of IndyMac's total deposits -- at risk. 2 198. Immediately following these revelations, analysts lowered their 3 earnings estimates for IndyMac, citing IndyMac's uncertain financial condition, 4 serious credit challenges, and "questionable" capital adequacy. Analysts remarked 5 that IndyMac appeared "at risk from regulatory intervention," and that "the 6 implications ... could be very severe for the bank," including "very draconian 7 actions by regulators." 8 3. Defendants Perry's and Keys' False Statements About 9 IndyMac's Liquidity Were Made With Scienter 10 199. Contrary to these statements, IndyMac in fact had serious and long- 11 standing liquidity problems. As detailed in the Trustee Complaint, IndyMac had 12 repeatedly violated its own liquidity policy and it knew no later than Fall 2007 that 13 it would have to raise substantial capital in order to survive. 14 200. On March 20, 2006, and March 31, 2006, Perry and Keys were sent 15 memoranda from David Hayes, Senior Vice President of Corporate Finance, 16 advising that IndyMac had breached its own Liquidity Policy as of January 31, 17 2006 and February 28, 2006, respectively, due to "minimal loan sales" "relative to 18 19 funding volume." Trustee Complaint ¶ 203(b)(c). 201. On October 3, 2006, Perry was advised that IndyMac had violated its 20 own Liquidity Policy because it had been unable to sell into the secondary market 21 the loans it had generated, which caused Loans Held for Sale to increase by $2.9 22 billion. Perry acknowledged his awareness of the problem, and specifically 23 IndyMac's violation of its own Liquidity Policy, by e-mail, noting, "I see this as a 24 problem." Id. ¶ 206. On October 30, 2006, Keys acknowledged his awareness of 25 the same issue, admitting at an Audit Committee meeting that: (a) "problem assets 26 are trending up"; (b) only 84% of the loan production from the Conduit Division 27

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1 had been sold in the third quarter, far short of 100% in the previous quarter; and (c) that Early Payment Defaults were rising. Id. ¶ 216. 2 202. On or about March 8, 2007, the OTS presented IndyMac's Treasurer, 3 4 Francisco Nebot, with a memorandum titled "Examiner Recommendations," listing five separate violations of IndyMac's Liquidity Policy that occurred in 2006. Id. ¶ 5 208. In addition to the foregoing facts, the following facts and communications 6 identified in the Trustee Complaint all establish Defendants' knowledge, during the 7 Class Period, of IndyMac's desperate financial condition and regulatory capital 8 9 problems, its pressing need to raise billions in funds to remain well-capitalized, 10 and the dismal prospects for raising such enormous amounts of outside capital: 203. By September 2007, IndyMac's liquidity problems had worsened. On 11 September 5, 2007, one of IndyMac's directors e-mailed senior management 12 regarding a recent analysis by Moody. That director stated that Moody's "estimates 13 are alarming" and "it appears that we are drastically under-estimating our 14 losses." Trustee Complaint ¶ 228. 15 204. As early as November 2007, the OTS recommended to senior 16 management that, based on the Bank's capital ratios, IndyMac needed to raise 17 significant outside capital. Id. ¶ 137(b). At around the same time, senior 18 19 management became aware that OTS intended to downgrade IndyMac's composite CAMELS rating from a "2" to a "3," creating a presumption that formal 20 enforcement action would be taken. Id. ¶ 137(b). 21 205. On January 4, 2008, Perry informed the Board of Directors and 22 related parties that he did not want potential investors to conduct due diligence 23 before submitting a term sheet because of concerns about how the marketplace 24 would perceive Bancorp. Trustee Complaint ¶ 139(b). 25 206. January 9, 2008 IndyMac Board minutes — which Ernst was required 26 to review -- memorialize a discussion among IndyMac directors, including Perry, 27 on capital raising and the risk of a run on the Bank in which Perry warns that 28

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IndyMac cannot count on raising any capital due, in part, to the poor market 1 performance of IndyMac's stock. Id. ¶ 74(a). 2 207. On or around February 8, 2008, Perry described IndyMac to an 3 outside investor as "literally fighting for" its life. Id. T 74(b). 4 208. Also on February 8, 2008, IndyMac's senior management told the 5 Board that there was "a very real risk that the OTS could soon pressure the Bank 6 to raise dilutive capital." Id. ¶ 137(c). 7 209. Incredibly, on February 12, 2008, just four days after the February 8 8 9 statements, Perry and Keys told investors that IndyMac was in a 'fundamentally sound financial condition." 10 210. On February 22, 2008, Darrel Dochow, the OTS's Western Regional 11 Manager, sent an e-mail to Perry stating that "[c]learly capital is thin ... in light of 12 the deteriorated asset quality" and suggested that Bancorp may need to raise capital 13 more expeditiously. Bancorp's Board Meeting Minutes dated February 26, 2008 14 observed that Perry warned the other Directors that, given regulatory scrutiny and 15 the risk that conditions could worsen, it "must be prepared to recapitalize the 16 Company." Id. ¶ 137(d). 17 211. Defendants' statements in the 2007 Form 10-K filed on February 29, 18 19 2008 that assured investors that IndyMac had "strong capital and liquidity positions" were false. As alleged in the SEC Complaint, e-mails between Perry 20 and Keys on February 19, 2008, show that they knew that the Bank was certain to 21 fall below the 10% well-capitalized ratio by the end of the first quarter 2008, and 22 that they were able to maintain the ratio, in part, by changing the Bank's traditional 23 method for calculating the ratio, which was not disclosed to investors. SEC 24 Complaint T¶ 19, 46-48. 25 212. Furthermore, contrary to the February 29, 2008 vague statement in the 26 2007 10-K that IndyMac "may" be forced to sell more shares, Defendants' 27 February 19, 2008 e-mails show that, Defendants had already decided to sell 28

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1 IndyMac common stock in the DSPP for the undisclosed purpose to raise cash to protect the Bank's 10% well-capitalized status, and to use the rest of the proceeds 2 to pay future preferred dividends. In fact, Defendants had already begun to sell 3 shares on February 26, 2008. Defendants falsely represented in the prospectuses 4 that the proceeds would be used for "general corporate purposes." SEC Complaint 5 ¶¶ 19-20, 25. Pursuant to Item 504 of Regulation S-K of the Securities Act, 17 6 C.F. R. § 229.504, the prospectus was required to disclose "the principal purposes 7 8 for which the net proceeds to the registrant from the securities to be offered are 9 intended to be used and the approximate amount intended to be used for each such 10 purpose." Id. ¶ 20, 24-25. 213. As a member of IndyMac's board of directors, Perry authorized the 11 offer and sales of stock through the DSPP, and Keys authorized the filing of DSPP 12 prospectuses issued prior to April 25, 2008, when he left the Company. Id. at 20. 13 The DSPP prospectuses stated in the section "Use of the Proceeds" that "We intend 14 to use the net proceeds from sales of common stock directly issued by us under the 15 plan for general corporate purposes, including investment in our subsidiaries. Id. 16 20. 17 214. IndyMac's DSPP prospectuses did not disclose the true reasons for the 18 19 DSPP stock sales - that Perry specifically planned to use the proceeds to infuse needed capital into IndyMac Bank to shore up the Bank's capital ratio, as well as 20 to enable the Company to continue paying preferred dividends. Nor did they 21 disclose that IndyMac Bank would not be able to maintain the capital ratio at 22 March 31, 2008 unless it changed the method of calculating the ratio. Neither did 23 the April 3 and May 2 prospectuses reveal that by the time IndyMac issued the 24 prospectus on April 3, its liquidity had deteriorated to the point that it had only 25 about $21 million in cash remaining. ¶¶ 32, 41. 26

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215. As discussed above, Perry and Keys received frequent reports of 1 IndyMac's capital ratio and were well aware of IndyMac's deteriorating capital 2 and liquidity positions. 3 E. Defendant Ernst Misleads Investors by Failing to Include a 4 "Going Concern" Reservation in Its 2007 Audit Opinion 5 216. Ernst intentionally, or with deliberate recklessness, failed to include a 6 "going concern" reservation in its February 28, 2008 audit opinion on IndyMac's 7 financial statements for the year-ended December 31, 2007. Such a reservation 8 would have stated what the Defendants knew and investors did not: that there was 9 10 a significant risk that IndyMac would be unable to meet its obligations over the 11 next few months, and would likely be forced into liquidation. Because of Ernst's failure to include a going concern reservation in its 2007 Audit Opinion, the public 12 did not learn there was a significant risk that IndyMac would be unable to continue 13 as a going concern (i.e., operating as of one year from the date of the December 31, 14 2007 financial statements), until May 12, 2008, the close of the Class Period, when 15 IndyMac revealed that it was no longer a well-capitalized institution and that it was 16 headed for insolvency. 17 1. Ernst Violated the Auditing Standards Governing the 18 Issuance of a "Going Concern" Reservation 19 217. AU § 341 requires auditors to evaluate whether there is "substantial 20 doubt" about the entity's ability to continue as a going concern for, generally, the 21 year following the date of the financial statements under audit. Where substantial 22 doubts exist, the auditor's opinion should contain a "going concern reservation." 23 As set forth in AU § 341.12: "If ... the auditor concludes that substantial doubt 24 about the entity's ability to continue as a going concern for a reasonable period of 25 time remain, the audit report should include an explanatory paragraph (following 26 the opinion paragraph) to reflect that conclusion." AU § 341.12. As defined in AU 27 § 341.02, "reasonable period of time" means "not to exceed one year beyond the 28

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1 date of the financial statements being audited." Of course, IndyMac did not last even close to one year, and was instead placed into conservatorship by the FDIC 2 on July 11, 2008, less than five months after Ernst's "clean" opinion. 3 218. The 2006 AAG states that there are five primary factors that an 4 auditor must consider in determining whether a going concern reservation is 5 needed: 6 1. Recurring operating losses; 7 2. Indications of strained liquidity; 8 3. Failure to meet minimum regulatory capital requirements 9 or to adhere to the terms of an approved capital plan; 10 4. Concerns expressed or actions taken by regulatory 11 authorities regarding alleged unsafe or unsound 12 practices; and 13 5. Indications of strained relationships between 14 management and regulatory authorities. 2006 AAG 15 5.108-118. 16 219. Four of these five conditions were already present at IndyMac by 17 February 28, 2008, when Ernst signed its unqualified opinion contained in 18 19 IndyMac's 2007 10-K. Specifically: (1) IndyMac had experienced operating losses in Q3 and Q4 of 2007; (2) liquidity was a recurrent concern of the Board of 20 Directors, as described in the Trustee Complaint; (3) the CAMELS downgrade had 21 already been communicated by the OTS on January 17, 2008; and (4) the 22 communications discussed in Board minutes indicated a strained relationship 23 between OTS and IndyMac. Moreover, the SEC Complaint provides detailed 24 evidence that on February 19, 2008, Keys alerted Perry that IndyMac Bank's 25 capital ratio was forecast to fall below the minimum 10% regulatory capital level 26 by March 31, and that Perry immediately (1) sought OTS permission to change the 27 method of calculating IndyMac's risk-based capital, and (2) began to raise new 28

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1 capital from investors through the DSPP, through prospectuses that asserted that the proceeds would be used "for general corporate purposes" — without disclosing 2 3 that the proceeds were actually needed to bolster the capital ratio. These events occurred in the days before Ernst certified the audit. The desperate measures were 4 of no avail. A month later, IndyMac had fallen out of compliance with minimum 5 capital requirements, even using the undisclosed revised methodology. 6 220. Under established accounting principles, Ernst was required to 7 consider all events that occurred in the period between the balance sheet date and 8 9 the issuance of the financial statements to identify potential subsequent events that 10 could impact IndyMac's current financial statements or its future operations. 11 Particular guidance resides within GAAP and generally accepted auditing standards ("GAAS") regarding the obligation of an independent auditor to consider 12 13 the effect that events that have occurred subsequent to the balance sheet date of a subject company's financial statements may have on either (a) those financial 14 statements or (b) the future operations of the company. 15 221. In Emerging Issues Task Force ("EITF") Topic D-86, Issuance of 16 Financial Statements ("EITF D-86"), the FASB provided the following, in relevant 17 part, regarding a company's obligation to refrain from issuing information, 18 19 especially in public filings with the SEC, that is misleading: [T]he SEC staff observed that Rules lOb-5 and 12b-20 under the 20 Securities Exchange Act of 1934 and General Instruction C(3) to Form 21 10-K specify that financial statements must not be misleading as of the 22 date they are filed with the Commission. For example, assume that a 23 registrant widely distributes its financial statements but, before filing 24 them with the Commission, the registrant or its auditor becomes aware 25 of an event or transaction that existed at the date of the financial 26 statements that causes those financial statements to be materially 27 misleading. If a registrant does not amend those financial statements or 28

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omissions when they are filed with the Commission, the registrant will 1 be knowingly filing a false and misleading document. In addition, 2 registrants are reminded of their responsibility to, at a minimum, 3 disclose subsequent events, while independent auditors are reminded of 4 their responsibility to assess subsequent events and evaluate the impact 5 of the events or transactions on their audit report. (Footnotes omitted.) 6 222. Statement on Auditing Standards § ("AU") 560, Subsequent Events 7 ("AU 560"), is the pre-eminent accounting guidance regarding subsequent events 8 and the considerations to be made relating thereto by both an auditor and a 9 10 company to whom such events might occur. According to AU 560, "events or 11 transactions sometimes occur subsequent to the balance-sheet date, but prior to the issuance of the financial statements, that have a material effect on the financial 12 statements and therefore require adjustment or disclosure in the statements... 13 referred to as `subsequent events."' (AU 560.01). 14 223. One type of subsequent event which would warrant particular 15 16 treatment by the auditor is described by AU 560 as: ...those events that provide additional evidence with respect to 17 conditions that existed at the date of the balance sheet and affect the 18 estimates inherent in the process of preparing financial statements. All 19 information that becomes available prior to the issuance of the financial 20 statements should be used by management in its evaluation of the 21 conditions on which the estimates were based. The financial statements 22 should be adjusted for any changes in estimates resulting from the use of 23 such evidence. (AU 560.03). 24 224. AU 560 also provides that an auditor generally should determine, 25 among other things, whether any unusual adjustments have been made during the 26 period from the balance-sheet date to the date of inquiry. (AU 560.12). 27

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2. Ernst Acted with Scienter in Failing to Provide a Going 1 Concern Reservation in Its 2007 Audit Opinion 2 225. The allegations in the Trustee Complaint and the related Transcript 3 provide compelling facts to support a cogent inference that Ernst intentionally or 4 with deliberate recklessness failed to include a "going concern" reservation in its 5 2007 Audit Opinion on February 28, 2008. The facts demonstrating Ernst's 6 scienter include: 7 (a) In October 2007, Keys informed the Board of Directors 8 9 that IndyMac had violated its own Liquidity Policy because it had 10 transferred $175 million to IndyMac Bank. Trustee Complaint ¶ 209. (b) In November 2007, senior management had been 11 informed that OTS intended to downgrade the Bank's CAMELS rating from 12 "2" to "3", and would require IndyMac to raise significant outside capital. 13 Id. ¶ 137(b). 14 (c) At a January 9, 2008 Joint IndyMac and IndyMac Bank 15 Board Special Meeting, Perry warned that IndyMac could not count on 16 raising capital due to poor market conditions and discussed the risk of a run 17 on the bank. Id. ¶ 74(a). Ernst was obligated to review these Board Minutes 18 as part of its 2007 audit, and therefore knew that liquidity problems and the 19 risk of a bank run were being discussed internally. 20 (d) On January 17, 2008, more than a month before Ernst 21 issued its audit opinion, OTS issued a letter to all members of IndyMac's 22 Board stating that the Bank's CAMELS assets rating had been downgraded 23 from "2" to "4" effective December 31, 2007. Ernst was required to review 24 this letter as part of its audit. 25 (e) IndyMac Board Meeting Minutes of February 8, 2008, 26 which Ernst was required to review, acknowledge the "very real risk" that 27 OTS would require IndyMac to raise dilutive capital. Id. ¶ 137(c). 28

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(f) Perry stated to an outside investor on February 8, 2008 1 that IndyMac was "literally fighting for" its life." Id. ¶ 74(b). 2 (g) By March 2008, FDIC determined that, to avoid failure, 3 the Bank needed to raise an astonishing $3.5 billion in additional capital to 4 5 avoid collapse. Id. ¶ 137(e). 226. Ernst was also aware of the fact that OTS commenced its 2008 6 examination four months early "because of IndyMac's deteriorating position." The 7 Treasury Report confirms that OTS contacted the FDIC on December 20, 2007. ." 8 The FDIC becomes involved in examinations "when a thrift exhibits material 9 10 deteriorating conditions that could result in the institution becoming troubled in the 11 near future. In this regard, FDIC may need to develop contingency plans for a thrift's possible failure or begin the resolution process." Treasury Report at 43. 12 227. As the auditor of IndyMac, a highly regulated company in the highly 13 regulated banking industry, either Ernst was aware of these actions and discussions 14 15 between IndyMac officials and the OTS and FDIC — the Bank's principal regulators — yet failed to take proper action, or Ernst was deliberately reckless in 16 disregarding these actions and discussions, in which case . Ernst performed "no 17 audit at all." 18 228. Ernst's scienter is further supported by Ernst's approval of Perry and 19 other IndyMac senior managers' fraudulent backdating of a cash infusion to March 20 31, 2008 in order to mask the fact that IndyMac did not meet the minimum capital 21 requirements for classification as "well-capitalized" at March 31, 2008, as 22 confirmed in the OIG's May 21, 2009 Audit Report entitled "Safety and 23 Soundness: OTS Involvement With Backdated Capital Contributions by Thrifts" 24 (OIG-09-037) (The "Backdating Report"), and by allegations in the Trustee 25 Complaint and the SEC Complaint. 26 229. The improper backdating approved by Ernst was specifically designed 27 to conceal — and did conceal — from investors the threat to IndyMac's financial 28

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1 viability if IndyMac's capital ratio were to fall below the 10% well-capitalized threshold. Ernst's conduct violated the requirements that an auditor maintain 2 independence in actions and appearance during an audit engagement (see AU § 3 220), as well as professional integrity and professional skepticism (AU § 230 and 4 AU § 316), and demonstrates that Ernst was not acting as an independent auditor 5 nor upholding its many obligations under GAAS. 6 230. On April 20, 2010, the Bankruptcy Court conducted a hearing at 7 which the court denied the motions of defendant Perry and the other former 8 9 IndyMac Bancorp directors to dismiss the Trustee's Complaint. See Adversary 10 Proceeding Case No. 2:09-ap-02645-BB, Docket No. 67-4, filed May 14, 2010 11 ("Transcript") Transcript at 132-133. The court found that IndyMac's Chapter 7 Trustee adequately alleged that the directors had wrongly "downstreamed" $355 12 million from the parent into IndyMac. Of the $355 million "downstreamed" 13 money, $175 million was transferred in 2007, despite Defendants' knowledge that 14 the situation at IndyMac was a "hopeless" lost cause, because IndyMac's hopes for 15 survival hinged on a $3.5 billion capital infusion, which Defendants knew was 16 impossible to obtain, and Defendants knew of red flags indicating that the Bank 17 was in danger of being seized by the OTS or FDIC at any time. The court agreed 18 19 that this was a total waste of Bancorp's assets, because Defendants knew the money was being poured into a "rathole," "that the OTS was going to -- or the 20 FDIC was going to be taking over any time." Transcript at 32, 41, 57. 21 231. One of the indicia that the auditor must consider in determining 22 whether a going concern reservation is needed is "[fJailure to meet minimum 23 regulatory capital requirements." 2006, AAG 5.112. Based on allegations in the 24 SEC Complaint against Perry and Keys, Ernst intentionally or with deliberate 25 recklessness disregarded that IndyMac's risk-based capital ratio was at or near the 26 10% well-capitalized threshold, and that the volatile credit environment meant that 27 any small event — such as a rise in interest rates — could cause the ratio to fall 28

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below the threshold. Ernst knew that falling below the minimum 10% "well- 1 capitalized" level would restrict the Bank's ability to freely access brokered 2 deposits — its lifeblood — and therefore Ernst was required to closely monitor this 3 metric. At the time Ernst certified the 2007 audit on February 28, 2008, Ernst 4 intentionally or with deliberate recklessness disregarded that the Bank's well- s capitalized ratio was precarious and that the measures taken to protect it provided 6 only a temporary quick fix. Thus, there was substantial doubt that IndyMac would 7 still be operating as of one year from the date of the December 31, 2007 financial 8 9 statements, requiring a going concern reservation. 232. Specifically, as alleged in the SEC Complaint, e-mails between Perry 10 and Keys on February 19, 2008 show that, at that date, Defendants knew that the 11 Bank's capital ratio could fall below the 10% well-capitalized ratio by March 31, 12 2008, and caused them to change the method of calculating the ratio to protect it. 13 SEC Complaint ¶¶ 19, 46. Ernst also knew that the Bank's capital ratio was the 14 15 most important metric to measure the Bank's safety and soundness, and that falling below the regulatory minimum 10% would have severe regulatory consequences, 16 including curtailing the Bank's access to brokered deposits. Capital ratios measure 17 the Bank's financial strength and regulatory compliance, and are one of the most 18 19 critical ratios for the auditor. 2006 AAG, Ch. 5, 5.65. Perry and Keys received frequent reports of the Bank's capital ratio by e-mail and in meetings (SEC 20 Complaint ¶ 13), and Ernst was obligated to know of these forecasts, and any other 21 events that could bring IndyMac's capital ratio below 10%. Ernst was also 22 required to be aware of any communications between IndyMac and the OTS 23 discussing changing the method of calculating the ratio or any other attempts to 24 "fix" this serious problem. Ernst knew that failure to meet minimum regulatory 25 capital requirements was one condition that, with others, would warrant a "going 26 concern" reservation in its audit opinion under AU § 341. 27

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233. At the very least, the "[t]hreat of failing to meet minimum capital 1 adequacy requirements that could cause adverse regulatory actions" is a "Fraud 2 Risk Factor" that could cause a material misstatement in the financial statements, 3 under 2006 AAG, Ch. 5, Exhibit 5-1 (Fraud Risk Factors). Given Perry's and 4 Keys' preoccupation with raising the capital ratio in the wake of the rise in interest 5 rates on February 19, 2008, and the repercussions if it fell below the minimum 6 10%, and the various existing and likely threats to the ratio in the then-volatile 7 economic climate, it is inconceivable that Ernst was not aware of the threat in the 8 9 days before it issued its clean audit opinion on the Company's 2007 financial 10 statements in the Form 10-K filed on February 29, 2008, and it is clear that Ernst 11 should not have certified that IndyMac's internal controls were effective at that date. 12 234. Ernst also knew that OTS guidance required double-weighting of 13 subprime assets in calculating risk based capital ratios. Indeed, IndyMac's 2006 14 year-end Form 10-K filed on March 1, 2007, and the 2007 year-end Form 8-K 15 filed February 12, 2008, explicitly stated that IndyMac followed the "double- 16 weighting" method in calculating its capital ratios. The 2007 8-K stated: 17 The OTS guidance for subprime lending programs requires a lender to 18 quantify the additional risks in its subprime lending activities and 19 determine the appropriate amounts of allowances for loan losses and 20 capital it needs to offset those risks.... We report our subprime loan 21 calculation in an addendum to the Thrift Financial Report that we file 22 quarterly with the OTS. All subprime loans HFI [held for investment], 23 and subprime loans HFS [held for sale], which are either delinquent or 24 more than 90 days old since origination, are supported by capital two 25 times that of similar prime loans. (Emphasis added). 26 The 2006 Form 10-K used substantially the same language. Because Ernst knew 27 IndyMac's established and stated method for double-weighting subprime assets, 28

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Ernst intentionally or with deliberate recklessness disregarded that IndyMac 1 departed from IndyMac's own stated "double-weighting" policy before February 2 28, 2008, when Ernst issued its clean and unqualified opinion, without 3 reservations, on IndyMac's ability to continue as a going concern in connection 4 with its audit of the 2007 financials in IndyMac's Form 10-K. Tellingly, the 2007 5 10-K, which contained Ernst's unqualified opinion, omitted the language which 6 had been included in the earlier 2006 Form 10-K and the 2007 Form 8-K, cited in 7 bold above, but made no mention of any change in the Company's accounting 8 practices. 9 235. Ernst intentionally or with deliberate recklessness disregarded these 10 subsequent events. Ernst either intentionally or with deliberate recklessness 11 disregarded that a steep rise in interest rates, like other market forces in the volatile 12 credit market of the time, would adversely impact the Bank's credit ratio. For 13 example, a rise in interest rates would cause borrowers to have difficulty repaying 14 their loans, increasing defaults and foreclosure rates. Moreover, Ernst intentionally 15 or with deliberate recklessness disregarded that IndyMac would be able to keep the 16 ratio above 10% primarily by the undisclosed agreement with the OTS to modify 17 the method of calculating the capital ratio to IndyMac's benefit, and that this did 18 not represent long term assurance that the Bank would remain well-capitalized. In 19 accordance with AU § 3 41 , as part of the "procedures normally performed" in the 20 audit of IndyMac Bank to identify conditions that would require a going concern 21 reservation, Ernst was required to know about and review communications from 22 the OTS. See 2006 AAG 5.111 (examples of audit procedures "normally 23 performed" by bank auditors to identify conditions and events requiring going 24 concern reservation include: review of subsequent events; reading of the minutes 25 of meetings of the board of directors and important committees of the board; 26 confirmation with related and third parties of the details of arrangements to provide 27 or maintain financial support; review of the financial strength and liquidity of the 28

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1 parent company; review of reports of significant examinations and related communications between examiners and the institution and review of compliance 2 with regulatory capital requirements."). 3 F. Defendant Perry Misleads Investors Regarding IndyMac's 4 Dramatic Over-Reliance on Brokered Deposits 5 1. During the Class Period, IndyMac Relied Excessively on 6 Brokered Deposits to Maintain Its Reported Solvency, and 7 Later Admitted That Those Brokered Deposits Were Used 8 from an "Expediency Perspective" Only 9 236. Brokered deposits are certificates of deposit that are marketed to 10 11 independent brokers who are charged with dividing holdings of wealthy individuals or cash-rich businesses into $100,000 units to enable them to take full 12 advantage of FDIC insurance. Brokered deposits are also known to bank analysts 13 and examiners as "hot money." Unlike consumer deposits, in which there is a 14 relationship between the bank and the consumer and the deposit base therefore 15 remains relatively constant, brokered deposits will quickly move to whichever 16 institution will pay the highest interest rate. Thus, while brokered deposits can 17 help boost liquidity, they also can pose liquidity risks when large numbers are 18 19 withdrawn in a short period. 237. Excessive reliance on brokered deposits is a red flag to investors and 20 has been implicated in many of history's largest bank failures. As FDIC 21 Chairwoman Sheila Bair has stated: "It is quite easy to get brokered deposits, and 22 there's not a lot of market discipline with the brokered deposits. When there's 23 excessive reliance on them, particularly to fuel rapid growth on the balance sheet, 24 that's definitely a high-risk factor." Steve Andrews, President and CEO of the 25 Bank of Alameda, has made similar comments: "As a general rule, if an institution 26 is relying on brokered deposits to fuel asset growth, it should raise a red flag with 27

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1 both investors and regulators. . . Keeping the percentage under 10 percent is a prudent approach versus letting the percentage creep over 25 percent or more." 2 238. From December 2006 to March 2008, 64% of IndyMac's growth in 3 overall deposits was fueled by brokered deposits. As of March 31, 2008, brokered 4 5 deposits made up 37% of IndyMac's overall deposits. These facts — which were highly material and would have immediately raised red flags with investors — were 6 7 never disclosed in a meaningful and reasonably accessible fashion to investors during the Class Period. 8 239. According to the Los Angeles Business Journal, in a "Special Report" 9 10 on IndyMac titled "IndyMac's Last Gasps," published on September 15, 2008, 11 IndyMac's core deposits in the first quarter of 2008 — $3 billion out of total deposits of $19 billion — were far below the industry standard: For many banks, 12 core deposits can account for more than 50 percent of a deposit base. The article 13 quotes a bank president and consultant as noting that "Anytime you see an 14 institution that is growing through noncore deposits, it is one of the big red flags 15 that should alert either the regulators or the public that the institution may be 16 17 engaged in some kind of higher-risk, higher-reward activity." 240. According to the Los Angeles Business Journal, Perry favored 18 19 brokered deposits as part of his strategy to use the Company's thrift status as an engine for making more loans rather than building a stable deposit base of local 20 customers with checking and savings accounts. Perry fostered the use of brokered 21 deposits to help fund IndyMac's rapid growth. The article quotes a former CFO of 22 IndyMac's Mortgage Bank who said that Perry "did not value deposit gathering — 23 period. [Perry] said, `Deposit gathering is a commodity business and asset 24 gathering is where the money is."' 25 241. On May 12, 2008, the final day of the Class Period, IndyMac 26 disclosed for the first time the extent of its reliance on brokered deposits, telling 27 investors in the Form 10-Q that if IndyMac were to fall under well-capitalized 28

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levels (as it simultaneously revealed it might), and that "even with a [brokered 1 2 deposit] waiver, if the interest rate limitations on brokered and solicited deposits were to be reduced, either by the lack of a full brokered deposit wavier or by the 3 interest rate limits on brokered or solicited deposits, we anticipate that we would 4 5 reduce our assets and, most likely, curtail our lending activities." In other words,

6 IndyMac was stating that it was so heavily reliant on brokered deposits that any limitation on its ability to accept them would cause the Company to restrict its 7 lending activities. 8 242. As explained below, these disclosures directly contradicted 9 Defendants' Class° Period statements that the Company's reliance on brokered 10 deposits "isn't on our radar screen of being important to us." 11 243. On June 30, 2008, IndyMac admitted that it had been forced to rely on 12 brokered deposits since "last summer" to maintain liquidity when the credit market 13 collapsed. IndyMac further stated that brokered deposits "were used from an 14 expediency perspective" only and that IndyMac had been working on reducing its 15 reliance upon them. Thus, IndyMac admitted that brokered deposits are not a 16 prudent and stable funding base. 17 244. In an August 1, 2008 interview, FDIC chairwoman Sheila Bair 18 confirmed that IndyMac was "unattractive" to buyers precisely because of its 19 reliance on brokered deposits: "[IndyMac] did not have a strong what we call a 20 core deposit base. A lot of the deposits were brokered, meaning securities brokers 21 just placed deposits [for] the institution — as opposed to the institution having a 22 relationship with the customer directly.... So there are a number of things about 23 this institution that, to be honest with you, make it unattractive to a potential 24 purchaser." 25 245. The Treasury Report concludes that "lack of core deposits" was a key 26 trigger of IndyMac's failure. The Treasury Report accurately characterizes 27 brokered deposits as one of IndyMac's "volatile funding sources," which the 28

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1 Report defined as a "source of funds that may present a potential risk to earnings and capital associated with brokered or other rate-sensitive deposits that may be 2 only temporarily available or require premium rates to retain." 3 246. As of September 2006, IndyMac had over $9 billion in outstanding 4 FHLB advances. An FDIC examiner commented in examination workpapers 5 reviewed by the IG, that IndyMac's FHLB advances represented 34 percent of total 6 assets, high in comparison to other similar size institutions. This examiner also 7 wrote that IndyMac should be monitored closely. OTS's examiner responded that 8 9 these were "eye-opening stats." In 'March 2008, FHLB advances remained high, at 10 32 percent of total assets. 247. IndyMac increased its use of brokered deposits beginning in August 11 2007, when the market for the thrift's loans collapsed. During the period August 12 2007 through March 2008, brokered deposits increased from about $1.5 billion to 13 $6.9 billion. 14 248. The Treasury Report notes that the lack of core deposits was fatal 15 when combined with IndyMac's aggressive business strategy and deficient 16 underwriting: "This strategy ultimately caused the thrift to make a large number of 17 bad loans, resulting in credit losses that could not be overcome, particularly when 18 19 the real estate and secondary markets collapsed in mid-2007 and loans had to be held to maturity. At this point, IndyMac's capital position was put in jeopardy and, 20 combined with its lack of retail deposits and reliance on brokered deposits and 21 FHLB advances, caused a liquidity crisis." 22 2. False and Misleading Statements Relating to Brokered 23 Deposits 24 249. As alleged in Paragraphs 238-241 above, during the Class Period 25 IndyMac dramatically increased its reliance on brokered deposits, which are a far 26 less stable source of capital than consumer deposits. During the Class Period, 27 IndyMac never disclosed in a meaningful manner reasonably accessible to 28

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1 investors the percentage of its deposits that were brokered deposits. Stock analysts were unaware of the Company's increasing dependence on brokered deposits, as 2 evidenced by the absence of any discussion of the issue prior to the end of the 3 Class Period. 4 250. Notwithstanding the foregoing, IndyMac repeatedly and falsely touted 5 6 IndyMac's "purportedly stable funding" base and stated that the maturation of CDs (a common instrument of brokered deposits) "isn't on our radar screen of being 7 important to us." Specifically, Perry made the following false and misleading 8 statements: 9 (a) "I don't know [the average time to maturity on CDs] off the top 10 of my head, but there isn't anything [where] you're kind of going that I'm 11 worried about ... the CD maturing and I'm going to have a big liquidity issue at 12 some point here. It just isn't on our radar screen of being of concern to us. I 13 14 mean, we're monitoring those types of situations, and certainly, whenever a financial institution has a loss, you could have a loss of confidence, but I think 15 given the fact that over 95% of our deposits are federally insured, I think we've 16 managed that pretty well." Statement of Perry, made on February 12, 2008 4Q 17 2007 Earnings Conference Call. 18 (b) "I think we've managed [our deposits] pretty successfully and 19 I think expect to manage it[.]" Statement of Perry, on February 12, 2008 4Q 2007 20 Earnings Conference Call. 21 (c) "The bottom line is, we have a very stable funding 22 structure[.]" Statement of Perry, on February 12, 2008 4Q 2007 Earnings 23 Conference Call. 24 (d) "[W]e have very strong liquidity, a good amount of excess 25 capital and there are no realistic scenarios that I can foresee that would impair 26 IndyMac's viability[.]" August 2, 2007 Posting on the IMBreport.com (quoting 27 Perry). 28

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(e) Touting liquidity risks as "about as close to none as you could 1 have." Statement of Perry, at September 7, 2007 "Investor Day" Conference. 2 (f) "You know, we have tremendous liquidity.... So, you know, 3 the bottom line is I think we have a very strong and secure funding source and 4 tremendous liquidity which I think, when you combine strong capital position with 5 strong liquidity, that's what gets you through these cycles in the mortgage market." 6 Statement of Perry, on July 31, 2007 2Q 2007 Earnings Call. 7 25 1. These statements were materially false and misleading for the reasons 8 9 alleged in at ¶¶ 236-248, above. Brokered deposits are not stable assets — they are, 10 in the words of the IG, "volatile funding sources," a fact that Perry admitted on 11 June 30, 2008, when he stated that such deposits were used from "an expediency perspective." And it is beyond reasonable dispute that excessive reliance on 12 brokered deposits poses a liquidity risk. 13 252. Moreover, in light of Perry's admission on June 30, 2008 that 14 IndyMac had been actively working to reduce its reliance on brokered deposits — a 15 fact never disclosed to investors during the Class Period — Perry's February 12, 16 2008 statements that (a) the maturation of CDs "just isn't on our radar screen of 17 being of concern to us," and (b) IndyMac had "managed [its deposits] pretty 18 19 well," were false and misleading. While CDs and brokered deposits are not the same, CDs are a common vehicle for brokered . deposits. The analyst's question 20 regarding maturity of CDs was reasonably understood to be directed at the issue 21 of brokered deposits and the potential for bank-runs, because brokered deposits 22 are highly volatile and frequently moved after maturation. Thus, Perry's 23 statement that such maturations were not on IndyMac's "radar screen" and that 24 IndyMac had "managed [its deposits] pretty well" were intended to, and did, 25 convey to investors that those assets were stable and that IndyMac did not have 26 concerns with such withdrawals. That implication was false. If IndyMac had 27 been actively working to reduce its dependence on brokered deposits and such 28

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1 deposits were only used as an "expediency" measure (as admitted in June 2008), the risk posed by excessive reliance on brokered deposits certainly was on 2 IndyMac's "radar screen," and rendered IndyMac's funding base anything other 3 than "stable." Indeed, IndyMac admitted on May 12, 2008, that its reliance on 4 brokered deposits was so great that even an interest rate limitation would cause 5 IndyMac to curtail its lending activities. Thus, Perry's statements were materially 6 misleading. 7 3. Defendant Perry Acted With Scienter 8 253. Defendant Perry made the foregoing statements with knowledge that 9 10 they were false and misleading. IndyMac maintained internal reports of the 11 percentage of deposits that were brokered deposits, and those reports were transmitted to regulators. In light of his managerial responsibilities and role, Perry 12 saw those reports. Perry's knowledge is also evidenced by Perry's June 30, 2008 13 blog posting stating that IndyMac had began actively building such deposits since 14 the summer of 2007 to increase liquidity, that such deposits had been used as an 15 "expediency" measure, and that IndyMac was allegedly working to reduce its 16 reliance upon them. It is implausible (and certainly not more probable, than not) 17 that Perry did not know about IndyMac's excessive reliance on brokered deposits 18 19 until after February 12, 2008. Further, former CFO of IndyMac Mortgage Bank, David Balsam, confirmed in a September 15, 2008 Los Angeles Business Journal 20 article that he had discussions with Perry regarding brokered deposits and that 21 reliance on brokered deposits were part of IndyMac's strategic direction. Finally, 22 Perry, as a mortgage industry veteran, was aware that over-reliance on brokered 23 deposits was a factor in many of the savings and loan failures of the 1980s and 24 therefore poses liquidity risks. 25

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G. All Defendants Misrepresent IndyMac's Assets, Liabilities and 1 Earnings in Financial Statements 2 254. All Defendants are liable for their participation in the issuance of 3 false and misleading financial statements during the Class Period. Defendants 4 Perry and Keys signed IndyMac's Forms 10-K for 2006 and 2007 and IndyMac's 5 interim quarterly reports on Forms 10-Q, falsely stating that the financial 6 statements therein, which included the ALL, were prepared in conformity with 7 GAAP. In the Form 10-Ks for 2006 and 2007, Ernst falsely stated that it had 8 9 completed an audit conducted pursuant to the standards promulgated by the 10 PCAOB and GAAS, established by the American Institute of Certified Public 11 Accountants ("AICPA") (together, "GAAS"), and affirmed that the financial statements had been prepared in conformity with GAAP. In fact, the Company's 12 financial statements contained materially insufficient ALL on IndyMac's portfolio 13 of loans held for investment ("LFIFI"). 14 255. Because ALL was directly related to, among other things, net income 15 and earnings per share, the understatement of the critical ALL metric had the effect 16 of inflating earnings for the reported periods. Moreover, the understatement of 17 ALL gave investors a false picture of the Company's true financial health by 18 19 understating the actual amount of IndyMac's impaired loans as of the date of the financial statements. 20 256. ALL is also a critical metric because it affects the Company's capital 21 levels. Under OTS policy, when the ALL exceeds 1.25 percent of risk-weighted 22 assets, it must be excluded from the equation that measures risk-based capital 23 levels. If the threshold were to fall below 10 percent, IndyMac would not have 24 been considered "well-capitalized" for regulatory purposes. A lack of a "well- 25 capitalized" classification has numerous adverse effects, most notably the inability 26 to accept brokered deposits. Because IndyMac relied on brokered deposits for its 27 solvency, IndyMac had a strong incentive to understate ALL. 28

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257. Consistent with requirements of GAAP, as well as existing SEC 1 guidance, relevant established rules and interpretive literature of accounting 2 3 bodies, and by federal bank regulatory agencies, Defendants Perry and Keys were required to ensure that the ALL was recorded and maintained at a level appropriate 4 to cover estimated losses on loans determined to be impaired as of the date of the 5 issuance of the financial statements. To make this determination, Defendants 6 would have to take into account all internal and external factors affecting the 7 collectibility of the portfolio as of the evaluation date. This would include, inter 8 9 alia, the undisclosed poor quality, and high risk nature of the Company's loan 10 portfolio, as well as known internal factors that would affect loan collectibility, 11 including the Company's dubious underwriting and appraisal practices. Defendant Ernst was concurrently required to adhere to GAAS and the 12 13 requirements of the PCAOB in its audits of these financial statements, to ensure material conformity with GAAP thereby. 14 258. All Defendants were aware of every one of the factors that caused the 15 level of ALL to be understated at the time they were issued in the financial 16 statements in IndyMac's Forms 10-K for the years ended 2006 and 2007, 17 respectively. As discussed below, the level of ALL decreased from year-end 2005 18 19 to year-end 2006, and did not increase sufficiently in 2007, even as the real estate industry, and IndyMac's own business, collapsed further. Defendants failed to 20 increase ALL despite the fact that the numerous critical statistics and ratios — 21 including rising delinquencies, non-performing assets as a percent of total assets, 22 and high-risk negative amortization ARMS — were all rising at the same time that 23 external conditions, such as home prices in IndyMac's principal market areas, were 24 further deteriorating. These negative internal and external factors all clearly 25 indicated that IndyMac's loan portfolio was subject to increasing risk of default, 26 and therefore under GAAP and other regulatory guidelines the ALL should have 27 increased commensurate with these seriously increased credit risks. 28

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1. Defendants Perry and Keys Authored Materially 1 Misleading Financial Statements 2 259. Defendants Perry and Keys both signed each of the annual reports on 3 Forms 10-K and quarterly reports on Forms 10-Q issued during the Class Period, 4 as well as the Sarbanes-Oxley Act certifications in which Perry and Keys asserted 5 that they had taken appropriate steps to assure themselves — and investors — that the 6 7 Company's financial statements were produced through a system of adequate controls, and were free from material misstatements. Thus, the financial 8 9 statements are statements of, and the responsibility of, Perry and Keys. 260. As of December 31, 2006, the Company reported an allowance for 10 11 loan losses of $62.3 million, compared to $55.1 million as of December 31, 2005. In 2006, however, the $62.3 million allowance was approximately 0.62% of the 12 total loan portfolio of assets held for investment, whereas the relationship at the 13 end of 2005 reflected a ratio of 0.67%. This reduction lacked any reasonable basis 14 because of the multitude of company-specific negative statistics (including, e.g., 15 increasing delinquency rates and increasing percentages of non-performing assets) 16 17 as well as economic and geographic factors (such as a heavy concentration of loans in California, where housing prices were deteriorating), all of which were 18 19 contributing to deterioration in the credit quality of the loan portfolio as of December 31, 2006. 20 261. As of December 31, 2007, the Company reported an allowance for 21 loan losses of $398.1 million. This was a significantly higher percentage of the 22 total loan portfolio than had been reported in 2006, but was still patently 23 unreasonable in light of (1) the continuing and rapidly accelerating collapse of the 24 real estate market in 2007, and (2) the sharply increasing rates of default and 25 delinquency suffered by IndyMac's loan portfolio resulting, in part, from 26 IndyMac's loosened underwriting standards and the use of inflated appraisals in the 27 credit review process. 28

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262. For example, in 2007, the allowance represented only 30% of the 1 2 value of non-performing loans held for investment, significantly below the 58% ratio in 2006 and 127% ratio in 2005. See Chart in ¶ 274 below. As such, the 3 Company's relevant financial statements materially understated the allowance for 4 loan losses, materially overstated the value of IndyMac's loan portfolio net of the 5 allowance for loan losses, and, thereby, overstated its net income during the Class 6 7 Period, because the numbers reported in its public filings were not prepared or presented in conformity with GAAP and were not faithful to SEC guidelines. 8 2. Ernst's False and Misleading Statements Opining That 9 IndyMac's 2006 and 2007 Financials Conformed with 10 GAAP and GAAS 11 263. Ernst issued unqualified (or "clean") audit opinions on IndyMac's 12 13 2006 and 2007 financials, which were included in the Company's Forms 10-K for years ending December 31, 2006 and 2007, respectively, in which Ernst falsely 14 represented that it had conducted its audits in conformity with GAAS, and that 15 IndyMac's financial statements were prepared and presented in conformance with 16 GAAP. Specifically, IndyMac's 2006 Form 10-K contained the following false 17 representation by Ernst: 18 We have audited the accompanying consolidated balance sheets 19 of IndyMac Bancorp, Inc. and subsidiaries (the Company) as of 20 December 31, 2006 and 2005, and the related consolidated statements 21 of earnings, shareholders' equity and comprehensive income, and cash 22 flows for each of the three years in the period ended December 31, 23 2006. These financial statements are the responsibility of the 24 Company's management. Our responsibility is to express an opinion 25 on these financial statements based on our audits. 26 We conducted our audits in accordance with the standards of 27 the Public Company Accounting Oversight Board (United States). 28

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Those standards require that we plan and perform the audit to obtain 1 reasonable assurance about whether the financial statements are free 2 of material misstatement. An audit includes examining, on a test 3 basis, evidence supporting the amounts and disclosures in the 4 financial statements. An audit also includes assessing the accounting 5 principles used and significant estimates made by management, as 6 well as evaluating the overall financial statement presentation. We 7 believe that our audits provide a reasonable basis for our opinion. 8 In our opinion, the financial statements referred to above 9 present fairly, in all material respects, the consolidated financial 10 position of the Company at December 31, 2006 and 2005, and the 11 consolidated results of its operations and its cash flows for each of the 12 three years in the period ended December 31, 2006, in conformity 13 with U.S. generally accepted accounting principles. 14

15 We also have audited, in accordance with the standards of the 16 Public Company Accounting Oversight Board (United States), the 17 effectiveness of the Company's internal control over financial 18 reporting as of December 31, 2006, based on criteria established in 19 - Internal Control — Integrated Framework issued by the Committee of 20 Sponsoring Organizations of the Treadway Commission and our 21 report dated February 26, 2007 expressed an unqualified opinion 22 thereon. 23 264. The 2007 Form 10-K contained a substantially identically worded 24 representation by Ernst, with only dates changed. The financial report within the 25 2007 Form 10-K republished all of the financial misrepresentations in the 2006 26 report, including the materially misleading loan loss allowance, and Ernst falsely 27

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1 stated that both the 2006 and 2007 financial statements were presently in conformity with GAAP. 2 265. When an auditor represents that a company's financial statements 3 4 conform in all material respects with GAAP, the auditor "indicates [his] belief that the financial statements taken as a whole are not materially misstated." AU § 312. 5 Indeed, "[fiinancial statements are materially misstated when they contain 6 misstatements whose effect, individually or in the aggregate, is important enough 7 to cause them not to be presented fairly, in all material respects, in conformity with 8 9 [GAAP]." AU § 312. 3. The Facts Demonstrating the Inadequacy of IndyMac's 10 Allowances for Loan Losses Were Known to Each 11 Defendant 12 266. As the auditor of IndyMac's financials, Ernst was well aware of the 13 14 rising delinquencies and increasingly risky composition of IndyMac's loans held for investment ("LHFI") portfolio. As set forth in greater detail below, Ernst, as 15 independent auditors of IndyMac, had access to all of the Company's regularly- 16 generated reports, including the PPQC monthly reports of the Bank's loans, which 17 identified pervasive systemic defects in IndyMac's underwriting process and were 18 available on IndyMac's intranet site. Abernathy Complaint ¶¶ 16-20. Ernst 19 similarly had access to all internal, external, and OTS audit findings showing 20 material deficiencies in IndyMac's system of internal controls. Indeed, both Keys 21 and Perry certified in IndyMac's 2006 and 2007 10-Ks that all material 22 deficiencies in internal controls over financial reporting that would affect financial 23 reporting in any way had been reported to Ernst. Furthermore, Ernst was aware of 24 its own audit findings, including its finding in 2006 that the Conduit Division 25 possessed significant serious internal control problems. 26 267. As IndyMac's two highest executives, with ultimate responsibility 27 over both financial reporting and financial controls, Perry and Keys also had access 28

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1 to and reviewed all reports and audits. Indeed, according to IndyMac's 2007 Proxy, Keys' compensation was tied to his ability to manage all audit findings and 2 supervise all financial reports. Moreover, Keys, as IndyMac's Chief Financial 3 Officer, would have been responsible for ensuring that the ALL adequately 4 reflected all internal and external factors impacting the carrying value of loans in 5 IndyMac's held for investment portfolio, including the value of collateral and the 6 collectibility of such loans. 7 268. In addition, as the Company stated in its 2007 10-K 9 in the 8 9 "Management" section: "[m]anagement maintain[ed] a central database of 10 internally identified findings, and this, in conjunction with operational and 11 financial controls, requires follow-up and accountability for any issues identified in this process." Additionally, IndyMac internally created a "Portfolio Characteristics 12 Report" every month, which listed all of the individual loans in IndyMac Bank's 13 portfolio, and stated whether they were non-performing. This Report was 14 submitted to Executive Vice President Patrick Hymel and the Enterprise Risk 15 Management Group, and was available to Perry, Keys, and Ernst. 16 269. As discussed in ¶¶ 129-137, Perry was also aware of — and in fact 17 directed — IndyMac's severely deficient underwriting and risk managements 18 19 practices. Keys was similarly aware of IndyMac's failure to conform with fundamental underwriting and appraisal standards. Because appraisals dictated the 20 collateral value of assets — and therefore the carrying value of loans and the 21 measure of probable losses built into the ALL, which directly affected financial 22 reporting — Keys necessarily was aware of OTS's January 2007 Report of 23 Examination, which identified "serious issues with IndyMac's appraisals," 24 including appraisals made without physical site inspection, appraisals based on 25 public data, and appraisals performed by appraisers hired by the borrower. That 26 same report also identified problems with the underwriting standards in the HCL 27 Division, and serious underwriting deficiencies in the Conduit Division — 28

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deficiencies that had been noted in multiple audits dating back to 2004 and yet 1 remained uncorrected. Keys was also necessarily aware of those prior internal and 2 external audits of the Conduit Division — which originated $31 billion in loans in 3 2006 — because he was responsible for managing all internal and external audits 4 that affected financial reporting. 5 270. The reports issued by IndyMac Bank's PPQC department and 6 distributed by e-mail and posted on Indymac's intranet site detailed the systemic 7 and pervasive violation of underwriting standards in IndyMac's loans before and 8 9 during the Class Period. Abernathy Complaint ¶ 16. The reports revealed that the 10 Bank's loan sample's "defect rate" ranged from 10% to 22% from September 2005 11 though August 2007, and that the Conduit Division had a defect rate of up to 30% from April 2005 through August 2007, and that the percentage of the random 12 sample of IndyMac Bank's loans containing misrepresentations ranged from 12% 13 to 18% from January 2007 (when reporting of that statistic began) through August 14 2007, including inflated appraisals and false information about the borrowers' 15 income, employment, assets and credit history. Id. ¶ 19. 16 271. The following chart shows five key metrics which alone demonstrate 17 that IndyMac should have reported higher ALL in the 2006 Form 10-K and 18 19 subsequent reports issued during the Class Period: Case Schiller Index, Value of 30 and 90 Day Delinquent Loans, 20 and Loan Loss Allowance 21

22 Value of Delinquent Loans 3 Month 12 Month Loan Loss Delinquent Loans as % of Loans Change in Change in Allowance as 23 Outstanding Case- Case- % of Loans Schiller Schiller Held for 24 30 Day 90 Day 30 Day 90 Day Index- Los Index — Investment Angeles Los Outstanding 25 Angeles

26 12/31/05 136,676 63,220 0.95% 0.44% 3.48% 21.80% 0.67%

27 03/31/06 144,694 94,107 0.89% 0.58% 1.31% 18.30% 0.65% 28

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1 06/30/06 132,430 105,094 0.87% 0.69% 1.73% 13.00% 0.66%

2 09/30/06 191,949 122,703 1.05% 0.67% .026% 7.10% 0.61%

3 12/31/06 292,979 164,572 1.50% 0.84% -1.42% 2.00% 0.62%

4 03/31/07 442,419 294,772 2.36% 1.51% -2.01% -1.40% 0.76% 5 06/30/07 579,655 447,253 2.84% 2.19% -0.93% -4.10% 0.89% 6 09/30/07 609,838 704,064 2.70% 3.12% -2.80% -7.00% 1.89% 7 12/31/07 817,793 1,344,834 4.12% 6.78% -.854% -13.70% 2.40% 8 03/31/08 -11.1% -21.72% 2.89% 9 272. Thus, at the same time that IndyMac was decreasing ALL (i.e. from 10 December 31, 2005 to December 2006), real estate prices had turned, 30-day 11 delinquencies were up 58% from the previous year, and 90-day delinquencies 12 were up over 90% from the previous year, 13 273. All of the data on this chart was well known to all Defendants. The 14 value of loans and value of delinquent loans were required to be filed and were 15 filed by IndyMac with the FDIC every quarter, under the direction of Perry and 16 Keys. Ernst was responsible, under GAAS and PCAOB standards, to be familiar 17 with industry conditions as well as the condition of IndyMac particularly its loan 18 portfolio, which was its principal business - for purposes of conducting its audits. 19 Ernst would have seen, as part of its audit procedures, documents filed by the 20 Bank with FDIC. The Case-Schiller index data is the most highly regarded index 21 of real estate prices, is published by Standard & Poor's, and is readily available 22 over the internet and through many business news services. The Case-Schiller 23 index is updated monthly, and is well known to real estate financial professionals. 24 274. The following chart, based entirely on information contained in 25 IndyMac's Form 10-Ks, shows that IndyMac assumed progressively greater risks 26 each year - which risks became embedded in the loans carried in its loan portfolio 27 28

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— yet it decreased ALL as of the end of 2006, and had insufficiently increased 1 ALL as of December 31, 2007, in violation of GAAP: 2

3 FY 2005 FY 2006 FY 2007 4 Non-performing assets .34% .63% 4.61% 5 as % of total assets 6 ALLL as % of non- 127% 58% 30% 7 performing loans held- 8 for-investment 9 ALLL as a % of all non- 76% 34% 26% 10 performing assets 11 HELOC 30-day 0.21% 1.56% 3.50% 12 delinquencies 13 Option ARMS Negative 56% 83% 91% 14 Amortization 15 Repurchases of Sold $108M $194M $613M 16 Loans 17

18 275. Not only was the risk of loss rising; realized loan losses had already 19 risen. Indeed, from December 31, 2005 to December 31, 2006, realized LHFI 20 losses increased by 67%, from $7.7 million in FY 2005 to $12.8 million in FY 21 2006. From December 31, 2006 to December 31, 2007, those losses increased to 22 $52.2 million in FY 2007 — by another 400% —for an aggregate increase of 23 %. In the face of these actual, already realized losses, Perry and Keys 24 578 decreased the ALL ratio at the end of 2006. Furthermore, the modest increase in 25 ALL at the end of 2007 was clearly inadequate in light of the 578% increase in 26 realized loan losses from the 2005 levels. 27

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4. Defendants Knew of and Ignored Numerous Red Flags 1 Demonstrating that the Allowance for Loan Losses in 2006 2 and 2007 Were Insufficient. 3 276. At the time Perry and Keys signed, and Ernst gave its unqualified 4 opinion on, the 2006 and 2007 financial statements (in March 2007 and February 5 2008, respectively), each intentionally or with deliberate recklessness disregarded 6 the following facts or red flags, which were in their possession, including from 7 available Company reports. In addition to the facts set forth above, which show 8 the falsity of Defendants' statements (and thus also show their scienter in making 9 those statements), these facts contradicted and undermined information in the 10 financial statements, particularly the allowance for loan losses, which resulted in 11 12 material misstatements of IndyMac's financial statements, including overstatements of income and earnings. Specifically, Defendants acted with 13 scienter in making the statements above, including filing false and misleading 14 financial statements with the SEC and disseminating such financial statements to 15 the investing public, as they intentionally or with deliberate recklessness 16 disregarded that: 17 (a) The percentage of loans delinquent by 90 days increased 91% 18 between 2005 and 2006. IndyMac's delinquency rates skyrocketed in late 2006 19 and throughout 2007, and yet IndyMac's allowance for loan losses decreased for 20 the year 2006 and then increased slowly in 2007. 21 (b) Home prices in the Los Angeles metropolitan area, where the 22 Bank had a significant concentration, had gone from increasing at an astonishing 23 rate of 21.80% in 2005 to decreasing by 1.42% in the last three months of 2006, 24 yet IndyMac decreased its ALL as a percentage of loans held for investment and 25 nonperforming loans as of December 31, 2006 as compared to the end of the prior 26 fiscal year, as depicted in its Forms 10-K. During 2007, home prices in that area 27 continued to decline at a rapid rate, and by December 31, 2007, had fallen 13.7% 28

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1 from the previous year. Nevertheless, IndyMac's ALL was still insufficient to cover probable losses in its portfolio as of December 31, 2007. 2 (c) The Company had ever-increasing exposures — which were the 3 direct result, at least in part, of IndyMac's efforts to increase volume at the expense 4 of sound underwriting in its highest-risk loan categories: 5 (i) Option ARMs comprised approximately 75% of 6 all loans made by IndyMac from 2004 to 2006, 7 and 75% of borrowers were making only 8 minimum payments on those ARMs in 2006. 9 (ii) Negative Amortization ARM loans increased from 10 56% of all Option ARM loans at the end of 2005 11 to 83% of all Option ARM loans at the end of 12 2006, to 91% of all Option ARM loans at the end 13 of 2007. See ¶ 274. 14 (iii) The Conduit Division originated 33% of the 15 Bank's loans in 2006, up from 25% in 2005. 16 Defendants were all aware that loans from this 17 Division presented greater risks than loans 18 generated by other divisions. See ¶¶ 111-113 . 19 (iv) Non-performing loans — the highest — risk category 20 of all — increased from 0.34% of all assets at year- 21 end 2005 to 0.63% at year-end 2006, to 4.61% at 22 year-end 2007. Despite this, the ALL as a 23 percentage of non-performing loans held for 24 investment declined from 127% in 2005 to 58% in 25 2006 to 30% in 2007. See ¶ 274. 26 (d) OTS had released the results of its examination on January 8, 27 2007 (just before the 2006 Form 10-K was released), and: (i) found serious 28

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1 underwriting and internal control deficiencies in the Conduit Division; (ii) required IndyMac to "[r]efine current ALLL practices or introduce new 2 methodologies to take advantage of more robust data and improve forecasts"; (iii) 3 required IndyMac to "[e]stablish a policy and related procedures for the 4 identification and classification of troubled collateral dependent loans"; and (iv) 5 "identified serious issues with IndyMac's appraisals." This information was 6 known to Defendants prior to issuance of the 2006 Form 10-K. See T¶ 113-117, 7 120-121. Ernst was required to know the results of examinations by the Bank's 8 9 regulators among the substantive tests necessary to evaluate the reasonableness of 10 the ALL. AAG 9.54. Recent regulatory exam reports provide information to 11 identify loans that contain high credit risk and are likely to fail and require increased ALL. AAG 9.59. 12 (e) On January 17, 2008, OTS downgraded the Bank's CAMELS 13 ratings, crucial metrics of the Bank's financial health, as of December 31, 2007, 14 citing, inter alia, deficient practices affecting ALL, and requiring twenty-four 15 different corrective actions. This information was known to Defendants prior to 16 issuance of the 2007 Form 10-K. 17 (f) IndyMac's internal audit review noted serious underwriting 18 19 problems in its HCL Division as early as 2004, and continued to cite the underwriting problems in this Division in 2005 and 2006. These issues remained 20 uncorrected through 2007 until the Division was closed. See ¶ 119. 21 (g) Ernst itself, in its management report to IndyMac's Board in 22 connection with its year-end audit for 2006, found that IndyMac's Conduit 23 Division, which was responsible for many of IndyMac's problem loans, 24 experienced financial reporting control deficiencies in 2006, and yet, despite the 25 magnitude of loans originated within that division, no changes or adjustments to 26 the ALL were made. See 112-113. 27

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(h) As discussed in Paragraphs 87-93 above, the OIG found 1 IndyMac to have engaged in fundamentally unsound and fraudulent loan 2 underwriting and real estate appraisal practices, which the OIG was able to 3 identify by examining 22 individual loan files, and which securitization insurer 4 MBIA also determined by examination of a small number of IndyMac loan files. 5 6 The conclusions of the OIG and MBIA are corroborated by numerous witnesses who described a Company-wide culture that, at every level, emphasized increased 7 loan origination volume in derogation of safe and sound underwriting standards. 8 9 See ¶¶ 74-86. (i) IndyMac had high concentrations of risky loans in California 10 11 and Florida, two of the areas where real estate was collapsing most dramatically in 2006 and 2007. 12 (j) Until November 2007, IndyMac failed to adhere to a federal 13 rule, issued jointly by the Office of the Comptroller of the Currency, the Federal 14 Reserve, the FDIC, the OTS, and the National Credit Union Administration, 15 effective in September 2006, that forbade lending to individuals without income 16 verification in most circumstances. See Interagency Guidance on Nontraditional 17 Mortgage Product Risks, 71 Fed. Reg. 58609, 58614 (Oct. 4, 2006), ¶ 101 above. 18 (k) As determined by the independent accountant engaged by 19 IndyMac separate from its relationship with Ernst, IndyMac's business units 20 were, throughout the Class Period, inconsistently calculating ALL, and senior 21 management failed to provide detailed guidance on how the business units should 22 develop historical loss data, look-back periods, and other baseline factors essential 23 to the calculation.. See ¶ 5. These findings demonstrate the direct causal link 24 between deficiencies in processes expected to be governed by internal controls 25 and the end-game financial statements included in the Company's public filings, 26 especially with respect to ALL. 27

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(1) The number of loans that had to be repurchased by IndyMac 1 nearly doubled in 2006, and tripled in 2007 — reflecting the fundamentally 2 deficient quality of IndyMac's underwriting. 3 277. All of the factors discussed above demonstrate that IndyMac was 4 facing increasing risks of loan defaults in 2006, compared to earlier periods, and 5 establish that the principle of "directional consistency," discussed in ¶¶ 290-297 6 below, required that ALL at December 31, 2006 should have been higher as a 7 percentage of LHFI, not lower, than in 2005. Perry's and Keys' certification of 8 9 the ALL in IndyMac's financial statements, and Ernst's unqualified opinion 10 thereon, were deliberately false and misleading in light of these numerous and 11 glaring red flags. 278. The monthly reports which IndyMac's PPQC unit distributed 12 internally by e-mail and posted on IndyMac's intranet site provided Defendants 13 with additional red flags demonstrating that IndyMac's loans were defective, 14 risky, and likely to suffer high rates of default. Abernathy Complaint ¶¶ 16-20. 15 Because of the frequency, content, reliability, and accessibility of these PPQC 16 reports, Ernst was aware of the reports and their data, and, if not, was deliberately 17 reckless in not knowing about them. 18 5. Defendants' Certification of Insufficient ALL in the Face of 19 Rising Delinquencies, Declining Property Values, Riskier 20 Loan Portfolios, and Numerous Adverse Audit Findings 21 and Internal Control Problems, Violated GAAP 22 279. Management is required to report its financial statements, including 23 the determination of ALL, in accordance with GAAP. The Company's auditor, in 24 order to issue an unqualified audit opinion on the reported financials, including 25 ALL, must ensure that those financials, including ALL, have been prepared in 26 material conformity with GAAP. Despite these requirements with respect to 27 ALL, Perry and Keys falsely reported that IndyMac's 2006 and 2007 year-end 28

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1 financials on Forms 10-K and its quarterly financials on Forms 10-Q, which included the ALL, complied with GAAP, when they did not. Defendant Ernst 2 falsely issued unqualified opinions asserting that the year-end 2006 and 2007 3 financials, including the ALL, were presented in accordance with GAAP, when 4 they were not. 5 280. The Company's portfolio of loans held for investment was presented 6 within the Company's balance sheet separately from other asset balances such as 7 cash, securities, or loans held for sale. Aligned with the loan portfolio was an 8 allowance for loan losses. The Company's allowance for loan losses was, 9 10 purportedly, meant to reflect, as reported in the relevant financial statements, the 11 Company's estimate of all probable credit losses resident within the loan portfolio. This estimate of probable losses was required by GAAP. 12 281. In IndyMac's financial statements, the Company used the term 13 "ALL" to refer to Allowance for Loans Losses on Loans Held for Investment. In 14 other words, IndyMac calculated ALL only for its loans held for investment 15 ("LHFI") portfolio — not for loans held for sale, and not for repurchases. The term 16 "Credit Reserves" is a broader term which includes other categories of reserves 17 and refers to the total amount of reserves for losses on lending—related assets on 18 the balance sheet. While only one category of "Credit Reserves" referred to ALL, 19 all five categories of "Credit Reserves" related to reserves for losses involving 20 IndyMac's lending activity. "Credit Costs" refer to an increase in all categories of 21 reserves during a particular quarter. Credit Costs are taken as an expense on the 22 Company's Income Statement and reduce income for that quarter. 23 282. GAAP are the official standards accepted by the SEC and 24 promulgated, in part, by the AICPA. Each Defendant certified that IndyMac's 25 financial statements were in material conformity with GAAP. Each is liable for 26 these misrepresentations. Among the GAAP violations by Defendants are: 27

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(a) The principle that conservatism be used as a prudent reaction 1 to uncertainty to try to ensure that uncertainties and risks inherent in business 2 3 situations are adequately considered. (FASCON 2 ¶¶ 95, 97); (b) The provisions of Financial Accounting Standard ("FAS") No. 4 5 5 ("FAS 5"), which provides that an estimated loss from a loss contingency, such as the collectibility of receivables, should be accrued (i.e., increase the allowance 6 for loan losses) by a charge to income, and requires the accrual of a loss 7 contingency when information available prior to the issuance of the financial 8 9 statements indicates that a loss on a loan or portfolio of loans (1) is "probable" 10 (defined as likely to occur) to have been incurred at the date of the financial 11 statements and (2) the amount of the loss can be reasonably estimated. (FAS 5 ¶¶ 3, 4, 8)' 12 (c) In the context of lending, FAS No. 5 requires consideration of 13 underwriting, and provides that a loan may even be impaired at origination "if a 14 faulty credit granting decision has been made or loan credit review procedures 15 are inadequate or overly aggressive, in which case, the loss should be 16 recognized at the date of loan origination." See AAG 9.36. 17 283. SEC Regulation S-X (17 C.F.R. § 210.4-01(a)(1)) provides that 18 19 financial statements filed with the SEC which are not prepared in compliance with GAAP are presumed to be misleading and inaccurate, despite footnote or other 20 disclosure. The responsibility for preparing the financial statements in conformity 21 with GAAP rests with the Company's management. See AU § 110.03. 22 284. In addition to those requirements provided in GAAP, the SEC 23 provides direct guidance on the proper accounting for credit losses, in SAB 102, 24 Selected Loan Loss Allowance Methodology and Documentation Issues ("SAB 25 102"). Specifically, SAB 102 states that "[ilt is critical that loan loss allowance 26 methodologies incorporate management's current judgments about the credit 27 quality of the loan portfolio through a disciplined and consistently applied 28

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1 process." Therefore, pursuant to SAB 102, a loan loss allowance methodology generally should "[c]onsider all known relevant internal and external factors that 2 3 may affect loan collectibility ... [and] be based on current and reliable data[.]" SAB 102 provides that the "[f]actors that should be considered in developing loss 4 measurements" include: 5 • Levels of and trends in delinquencies and impaired loans; 6 • Levels of and trends in charge-offs and recoveries; 7 • Trends in volume and terms of loans; 8 • Effects of any changes in risk selection and underwriting standards, 9 and other changes in lending policies, procedures, and practices; 10 • Experience, ability, and depth of lending management and other 11 relevant staff; 12 • National and local economic trends and conditions; 13 • Industry conditions; and 14 • Effects of changes in credit concentrations. 15 285. SAB 102 further states that " ffJor many entities engaged in lending 16 activities, the allowance and provision for loan losses are significant elements of 17 the financial statements. Therefore, the staff believes it appropriate for an 18 entity's management to review, on a periodic basis, its methodology for 19 determining its allowance for loan losses." Thus, in addition to evaluating loans 20 for impairment at origination, lenders are expected to reevaluate their reserving 21 methodology, and therefore their loans and loan portfolios, for impairment, every 22 financial reporting period thereafter. 23 286. The SEC's Financial Reporting Release 28 § 401.9 ("FRR 28") also 24 provides, in relevant part, that "[b]ecause the allowance [for loan and lease losses] 25 and the related provision are key elements of financial statements of registrants 26 engaged in lending activities, it is critical that those judgments be , exercised in a 27

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1 disciplined manner that is based on and reflective of adequate detailed analysis of the loan portfolio." 2 287. In addition to the foregoing standards, according to the AICPA 3 Guide, § 9.17: 4 • Loan evaluations by management (and tests of such by 5 independent accountants to the extent they are performed as 6 part of the engagement) should avoid the following: 7 a) Collateral myopia. This is the failure to see beyond 8 collateral values to a financial weakness in the 9 borrower.... 10 b) Inadequate collateral appraisals. This is the failure to 11 critically review appraisals to understand the methods 12 employed, assumptions made, and limitations inherent in 13 the appraisal process, including undue reliance on 14 management appraisals. 15 288. As discussed in ¶T 276-278 above, Defendants violated applicable 16 GAAP standards and SEC guidance by ignoring all of the evidence — internal and 17 external — that the credit quality of IndyMac's loan portfolio had deteriorated as a 18 19 result of, among other things: (1) underwriting violations; (2) ineffective risk management practices; (3) inflated appraisal values; (4) rising delinquencies and 20 increasing concentrations in high-risk, exotic loans like option ARMs, with a rise 21 in negative amortizations; and (5) the growth of IndyMac's Conduit Division, 22 which was identified as a financial reporting control deficiency by Ernst in 2006, 23 and which IndyMac's internal audit group reported as having problems as early as 24 2005. Additional risk factors known to but disregarded by Defendants included 25 the collapse of the housing market, especially in California and Florida, where 26 IndyMac's loans were concentrated. 27

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289. Ernst violated GAAS by issuing an unqualified opinion on the 1 purported material conformity of IndyMac's financial statements with GAAP 2 despite all of the foregoing evidence, as well as despite an awareness that (1) 3 4 internal controls surrounding the computation of ALL were deficient and, (2) therefore, the computation of ALL was rendered ineffective and, ultimately, 5 insufficient to reflect all of the inherent and known and probable losses in the 6 LHFI portfolio. 7 6. Defendants' Approval of Decreasing ALL for 2006 Violated 8 Applicable Regulatory Guidance on Directional Consistency 9 and Rendered the 2006 Financial Statements Materially 10 False and Misleading 11 290. The federal banking regulatory agencies which regulated IndyMac 12 considered the accounting for ALL so critical that, on December 13, 2006, the 13 14 Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the FDIC, the OTS, and the National Credit Union 15 Administration, issued a Revised Interagency Policy Statement On the Allowance 16 for Loan and Lease Losses ("the 2006 ALLL Government Policy Statement"). 17 291. The 2006 ALLL Government Policy Statement reaffirmed that: (1) 18 19 for lending institutions like IndyMac, "ALLL represents one of the most significant estimates in an institution's financial statements and regulatory 20 reports"; (2) GAAP presents the most appropriate means for management to 21 calculate ALL; and (3) established GAAP principles require management to 22 consider all relevant internal and external circumstances in determining the 23 amounts of ALL in accordance with GAAP and SEC rules (principally FAS 5 and 24 SAB 102). 25 292. The 2006 ALLL Government Policy Statement further confirms the 26 GAAP requirement that ALLL should be "directionally consistent" with changes 27 in the risk factors facing a lending institution. This means that if the risk factors 28

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1 facing a lending institution — such as inadequate underwriting, delinquencies, negative amortization ARMS, and/or falling home prices reducing collateral 2 values — rise, then ALLL should rise as well. 3 293. According to the 2006 ALLL Government Policy Statement, in 4 5 determining IndyMac's ALLL in accordance with GAAP, Defendants were required to consider "all significant factors that affect the collectibility of the 6 portfolio as of the evaluation date," including "those qualitative or environmental 7 8 factors that are likely to cause estimated credit losses associated with the 9 institution's existing portfolio to differ from historical loss experience." To do so, Defendants were required, for example, to conduct a comprehensive, well- 10 11 documented, and consistently applied analysis of IndyMac's loan portfolio. Among the qualitative or environmental factors that Defendants should have 12 considered in estimating ALL were the following: 13 • changes in lending policies and procedures, including changes 14 in underwriting standards; 15 • changes in international, national, regional, and local economic 16 and business and real estate market conditions that affect 17 collectibility of the loans; 18 • increased volume of the loan portfolio and changes in the 19 nature and terms of the loans; 20 • increases in volume and severity of past due loans, and 21 nonaccrual loans; 22 • changes in the value of the underlying collateral; 23 • the existence and effect of concentrations of credit, and 24 changes in the level of such concentrations, including 25 geographic concentration of loans; and 26 27

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• the effect of other external factors such as competition and legal 1 and regulatory requirements on the level of estimated credit 2 losses in the institution's existing portfolio. 3 294. According to the principle of "directional consistency," if the risk 4 factors described above increase, so should ALL. As the 2006 ALLL Government 5 6 Policy Statement made clear: "[C]hanges in the level of the ALLL should be 7 directionally consistent with changes in the factors, taken as a whole, that evidence credit losses, keeping in mind the characteristics of an institution's loan portfolio. 8 9 For example, if declining credit quality trends relevant to the types of loans in an institution's portfolio are evident, the ALLL level as a percentage of the portfolio 10 should generally increase, barring unusual charge-off activity. Similarly, if 11 improving credit quality trends are evident, the ALLL level as a percentage of the 12 portfolio should generally decrease." 13 295. Perry and Keys violated the notion of "directional consistency" when 14 they decreased ALL as a percentage of loans held for investment from 2005 to 15 2006, despite all known available information indicating that internal and external 16 risk factors related to collectibility of loans had dramatically increased. First, 17 Perry and Keys were aware of, inter alia, the Company's improper risk 18 management, appraisal, and underwriting practices during the Class Period, as well 19 as the declining loan quality and sharply increasing delinquencies resulting, in 20 large part, from these practices. Second, Perry and Keys had access to and 21 reviewed the underlying data and statistics in their own financials, and should have 22 reviewed a sample of IndyMac's loans. All of this information would have 23 demonstrated both that the risks in IndyMac's loan portfolio were dramatically 24 heightened, and that the ALL should have been increased as necessary to match 25 these heightened risks. 26 296. Defendant Ernst similarly disregarded the mandate to apply 27 "directional consistency" to calculations of ALL when it gave its unqualified 28

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1 opinion that IndyMac's decreasing ALL — in the face of rapidly rising delinquencies, declining property values, exotic and risky loans, and documented 2 underwriting and internal control problems — "present[ed] fairly, in all material 3 respects," the financial position of the Company. Any audit at all would have 4 shown that loans were granted with no regard for underwriting standards, and with 5 little, if any, documentation of borrowers' income or employment, and that 6 collateral values underlying the loans were untrustworthy because many were 7 8 based on fraudulent appraisals and were concentrated in collapsing home-value 9 markets of California and Florida. All these factors clearly demonstrated that 10 IndyMac's historic loss experience was a useless model for calculating ALL in 11 2006 and 2007, and that the ratio of ALL to LFIFI should have increased in tandem with rising internal and external risk factors. 12 297. Defendants Perry and Keys were aware of the 2006 ALLL 13 Government Policy Statement because it was sent to banks, accompanied by a 14 cover letter from The Office of the Comptroller of the Currency, Board of 15 Governors of The Federal Reserve System, The Federal Deposit Insurance 16 Corporation, National Credit Union Administration, and The Office of Thrift 17 Supervision. The cover letter, dated December 13, 2006, "suggested routing" the 18 19 2006 Policy Statement to the banks' Chief Executive Officer, Chief Financial Officer, Chief Lending Officer, and Board of Directors. Defendants understood 20 the critical importance of the 2006 Interagency ALLL Policy Statement to 21 IndyMac because it was sent from all five Federal government banking regulators, 22 and addressed one subject only — the importance of GAAP as the proper standard 23 for calculating ALL — and was specifically addressed to Defendants Perry and 24 Keys, IndyMac's CEO and CFO at that time. 25 298. In performing its audit, Ernst either intentionally or with deliberate 26 recklessness disregarded the 2006 ALLL Government Policy Statement. Because 27 of its extreme importance, Ernst had a duty to be aware of this Policy Statement 28

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1 and was required to apply the principle of directional consistency to ensure that IndyMac's financial statements were materially accurate. 2 7. Defendant Ernst Deliberately Disregarded Guidance 3 Regarding ALL Provided in the 2006 AICPA Audit and 4 Accounting Guide 5 299. The AICPA prepares and issues industry-specific Audit and 6 Accounting Guides ("AAG"), including one for banks and other depository and 7 lending institutions like IndyMac. As noted above at ¶¶ 141-151, in 2006, the 8 9 AICPA Financial Institution Guide Combination Task Force ("Task Force") 10 prepared and issued the 2006 AAG. Defendant Ernst was required to consider this 11 guidance to ensure that IndyMac's financial statements, including the ALL, were prepared in accordance with GAAP. 12 300. As the 2006 AAG confirmed, loans and underlying collateral are the 13 primary focus of the audit of financial institutions like IndyMac. The 2006 AAG 14 noted that for financial institutions, like IndyMac, since loans usually are the most 15 significant assets and generate the largest portion of revenues for banks, the auditor 16 must understand the unique features of, and risk factors affecting, the Company's 17 loan portfolios — and the consequent need to focus on the accuracy of the ALL 18 19 estimate — at the time of the audit. (AAG 8.01). Thus, to plan and design audit 20 procedures properly, the independent accountant needs to understand the institution's loan portfolio, lending processes, and loan accounting policies, as well 21 as other factors such as economic conditions. (AAG 8.02). 22 301. The 2006 AAG identified specific risks that existed at IndyMac that 23 were blatant red flags for all Defendants who prepared and audited IndyMac's 24 financials. For example, § 316 requires examination of incentives and pressures 25 present at the Company, including: (a) aggressive loan goals; (b) incentives for 26 origination; (c) relaxation of credit standards; (d) excessive concentrations of 27 lending; (e) excessive lending in new products; (f) frequent or unusual exceptions 28

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1 to credit policy; and (g) financial stability or profitability is threatened by economic, industry or entity operating conditions, such as unusually large growth 2 3 in the loan portfolio without commensurate growth in the ALL. As discussed above T¶ 74-120, each one of these factors was present at IndyMac. 4 302. The 2006 AAG also identifies collateral risk (where the value of 5 collateral is declining) and concentration risk (where the loan portfolio is 6 concentrated in certain products or geographic regions) as two major credit risks 7 requiring higher ALL. Both of those risks were present at IndyMac. 8 303. The 2006 AAG identified the following factors related to loans as 9 10 indicative of higher inherent risk (and, often, higher control risk) for loans and 11 related amounts, all of which applied to IndyMac during the Class Period: • High rate of growth in the loan portfolio; 12 • Significant changes in the composition of an institution's 13 portfolio; 14 • Poor underwriting standards and procedures; 15 • Significant nontraditional lending activities that involve a 16 higher degree of risk, such as highly leveraged lending 17 transactions; 18 • Failure of personnel to follow management's written lending 19 policies for underwriting and documentation; 20 • Loans that are continuously extended, restructured, or 21 modified; 22 • Significant concentrations of loans in a particular industry or 23 geographic area; and 24 • Significant concentrations of loan products with terms that give 25 rise to a credit risk; such as, negative amortization loans, loans 26 with high loan-to-value ratios, multiple loans on the same 27

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collateral that when combined result in a high loan-to-value 1 ratio, and interest-only loans. (AAG 8.133). 2 304. The 2006 AAG recommended that auditors focus on the following 3 key factors to evaluate whether the ALLL estimate was reasonable: 4 • The effectiveness of the institution's internal control 5 related to loans and the allowance for loan losses; 6 • Current local, national, and international economic 7 conditions and trends, particularly as they have affected 8 collateral values; 9 • Composition of the loan portfolio and trends in volume 10 and terms of loans, as well as trends in delinquent and 11 nonaccrual loans that could indicate historical loss 12 averages do not reflect current conditions; 13 • Identified potential problem loans and large groups of 14 problem loans, including delinquent and nonaccrual 15 loans and loans classified according to regulatory 16 guidelines; 17 • Concentrations of loans to individuals or entities and 18 their related interests, to industries, and in geographic 19 regions; 20 • Quality of the internal loan review and internal audit 21 functions; 22 • The effects of changes in lending policies and 23 procedures, including those for underwriting, credit 24 monitoring, collection, and charge-offs that could 25 indicate historical loss averages do not reflect current 26 conditions; and 27 • Results of regulatory examinations. 28

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(AAG 9.54). 1 305. Ernst deliberately disregarded the foregoing standards. Not only did 2 Ernst ignore the obvious facts that delinquencies were increasing and collateral 3 values were decreasing, Ernst also ignored (a) its knowledge, developed from the 4 internal documents discussed herein, that the Bank's internal controls over lending 5 6 practices were so defective that the Bank's processes provided an insufficient basis for calculating ALL; (b) its own finding that the Conduit Division, which 7 originated approximately one-third of IndyMac's loans in 2006, was suffering from 8 9 various significant internal control deficiencies, and (c) OTS's finding — which was 10 communicated to Ernst and confirmed by an independent public accountant in 11 early 2008 — that IndyMac's ALL methodology was flawed. In the face of these and the other known facts set forth above, Ernst's unqualified opinions relating to 12 the 2006 and 2007 financials statements were intentionally or deliberately 13 recklessly false. 14 8. The Standards of GARS, and Contemporaneous AICPA 15 Audit Risk Alerts, Required Ernst to Ensure that it Had a 16 Thorough Understanding of IndyMac's Business, Internal 17 Controls and Awareness of Growing Risks Facing the 18 Banking Industry 19 306. GAAS is comprised of ten basic standards that establish the 20 requirements of an auditor's performance and the objectives to be achieved in a 21 financial statement audit. Auditors are required to follow these standards in every 22 audit they conduct. 23 307. The GAAS standards fall into three basic categories: General 24 Standards, Fieldwork Standards, and Reporting Standards. The General Standards 25 provide critical guidance to the auditor on the exercise of due professional care in 26 the performance of the audit. The Standards of Fieldwork provide guidance on 27 audit planning, evaluation of internal controls, and collection of sufficient 28

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evidential matter to form a reasonable basis for the auditor's audit opinion on the 1 financials. The Standards of Reporting provide guidance to the auditor on the 2 content of the audit report, and the remedies available to the auditor to modify that 3 report if it cannot give an unqualified opinion that the financial statements audited 4 have been prepared in material conformity with GAAP. AU § 150.02. 5 308. For purposes of its audits of IndyMac for 2006 and 2007, Ernst had a 6 7 professional obligation, in accordance with GAAS, to perform the following procedures, among others: 8 (i) In accordance with AU § 311 ("Planning and Supervision"), 9 Ernst was required to perform specific audit procedures to 10 obtain an understanding of IndyMac and its environment, 11 including internal controls, and to be able to assess the risks of 12 material misstatement in the financial statements (AU § 311.06- 13 09). Further, Ernst was required to consider, when planning 14 and performing its audits, matters affecting the industry in 15 which IndyMac operated, such as economic conditions, 16 government regulations, accounting practices common to the 17 industry and financial trends and ratios pertaining to the 18 Company. Thus, Ernst was required to be familiar with the 19 Audit Risk Alerts ("ARAs") and AICPA Audit and 20 Accounting Guides ("AAG') for auditors of banks and other 21 lending institutions that were issued during the 2005-2008 22 periods. These ARAs and AAGs specifically identified risks 23 associated with data-based evidence indicating that mortgage 24 lenders were engaging in loose underwriting, and were offering 25 exotic, risk-laden, high loan-to-value products, including option 26 ARMS, all of which required the auditor's increased skepticism 27 and attention, especially with respect to audits of ALLL. 28

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(ii) Develop knowledge about IndyMac's accounting systems as 1 they relate to the pricing models supporting the accounting 2 estimates used to determine the allowance for loan losses (AAG 3 Chs. 5, 9, and 10). 4 (iii) Consider the operating effectiveness of controls for the 5 origination of loans, including: "inspect[ion of] loan documents 6 to determine whether the institution's lending policies [were] 7 being followed" (AAG Ch. 8). 8 (iv) Obtain sufficient appropriate audit evidence by performing 9 audit procedures to afford a reasonable basis for an opinion 10 regarding the financial statements under audit, including 11 documentation surrounding the company's computation of an 12 allowance for losses and evidence underlying collateral values 13 (presumably on a test basis, but the procedures for which could 14 be adjusted based on red flags or other findings). 15 (v) Evaluate "(a) whether management's assumptions [were] 16 reasonable and reflect ... market information ..., (b) the fair 17 value measurement was determined using an appropriate model 18 ..., [and] (c) management used relevant information that was 19 reasonably available at the time" (AU § 328.26). 20 (vi) Obtain sufficient appropriate audit evidence regarding the fair 21 value of collateral (AU § 328.25, AAG Ch. 9, in a subsection 22 titled "Management's Methodology"). 23 (vii) Perform tests to corroborate management's representations such 24 that reliance thereupon is appropriate. (AU § 333, 25 "Management Representations," ¶ 2, AU § 319.95). 26 (viii) Consider the information contained in IndyMac's internal 27 audits and/or reviews of the Conduit Division (completed in 28

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2005) and the Home Construction Loan Division (completed in 1 2004). 2 309. At every step of its audits, Ernst was required to exercise professional 3 skepticism, a necessary component of due professional care when performing its 4 audits. (AU § 230, "Due Professional Care in the Performance of Work"). 5 310. Contemporary 2005/2006 GAAS pronouncements specific to the 6 banking industry, and applicable to IndyMac, highlighted in great detail the 7 deteriorating industry and economic risk factors plaguing the banking industry that 8 9 posed risks which Ernst needed to be aware of in conducting its audit of IndyMac 10 in 2006, including the methods for calculating and adequacy of ALL for loans held 11 for investment. For example, the 2005-2006 AICPA Risk Alert ("ARA") warned of industry and economic developments and economic factors in the mortgage 12 banking sector, including: (1) relaxation of lending standards, (2) the much talked- 13 about housing bubble, and (3) the influx of new risky loan products introduced into 14 the marketplace to gain competitive advantage, such as option ARMS, resulting in 15 negative amortization. 16 311. Similarly, AU § 316 requires examination of incentives and pressures 17 present at a company for purposes of determining the risk that fraud may have 18 19 occurred in the preparation of the financial statements, including: (a) aggressive loan goals; (b) incentives for origination; (c) relaxation of credit standards; (d) 20 excessive concentrations of lending; (e) excessive lending in new products; (f) 21 frequent or unusual exceptions to credit policy; and (g) financial stability or 22 profitability is threatened by economic, industry or entity operating conditions, 23 such as unusually large growth in the loan portfolio without commensurate growth 24 in the ALL. 25 312. Each of these risk factors was applicable to IndyMac. Yet Ernst failed 26 to qualify its audit opinion despite a decrease in the ALL to LHFI ratio in 2006, 27 and in 2007 approved a slight percentage increase, which with intentional or 28

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1 deliberate recklessness ignored the cataclysmic deterioration in the Bank's loan portfolio and adverse external conditions such as declining housing prices in areas 2 of the Bank's largest concentrations, all of which impaired the Bank's loan 3 portfolio to a much greater extent than reflected in the ALL. 4 313. The 2005-2006 ARA also stated that auditors need to be aware of the 5 following risks for home equity loans ("HELOCs"), a large part of IndyMac's 6 business, and major source of losses, as Defendants ultimately admitted: 7 • Interest-only features that require no amortization of principal 8 for a protracted period; 9 • Limited or no documentation of a borrower's assets, 10 employment and income; 11 • Higher loan-to-value and debt-to-income ratios; 12 • Lower credit risk scores for underwriting home equity loans; 13 • Greater use of automated valuation models and other collateral 14 evaluation tools for the development of appraisals and 15 evaluations; and 16 • An increased number of transactions generated through a loan 17 broker or other third party. 18 314. Ernst was required to take into account these risks when planning and 19 performing its audits of IndyMac's 2006 and 2007 financial statements. It either 20 did so and falsely certified IndyMac's financials, or it failed to conduct proper 21 audits and nonetheless certified that it did. 22 9. Ernst Ignored the AICPA Audit Risk Alert for 2007/2008 23 Which Identified Specific Risk Factors Relating to IndyMac 24 315. The AICPA issued an Audit Risk Alert ("ARA") for 2007/2008 25 setting forth "Bank, Credit Union, and other Depository and Lending Institution 26 Industry Developments." This ARA emphasized the importance of understanding 27 28 the company and its environment under AU § 311 ("planning and supervision") to

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1 assess the risks of material misstatement in the company's financials. The ARA 2 highlighted the risks specifically affecting mortgage banks in light of the changing economy, increasing mortgage delinquencies, and declining property values. It 3 advised auditors to scrutinize internal controls, examine incentive structures, and 4 carefully evaluate ALL. In approving IndyMac's ALL in the 2007 Form 10-K — 5 which, as a percentage of non performing LHFI, was even lower than in the 6 2006 Form 10 K — Ernst deliberately disregarded these highly-publicized risks and 7 8 IndyMac's long history of underwriting, appraisal, and internal control deficiencies. 9 10. The Falsity of IndyMac's ALL Is Confirmed by The 10 Astonishing Degree to Which IndyMac's Reserves Proved 11 Inadequate. 12 316. Not surprisingly, IndyMac's ALL proved grossly inadequate. In the 13 fiscal year 2007, IndyMac had to increase ALL by an astonishing $395 million — 14 600% of the ALL set at the beginning of that year. During that year, IndyMac 15 had net charge-offs for bad loans of $52.2 million — a full 85% of the $62 million 16 reserve it set as of December 31, 2006 Those charge-offs are enormous relative 17 to the reserves because reserves are set for the life of a loan. FAS 5 requires the 18 accrual of a loss contingency when information available before the issuance of the 19 financials indicates that it is "probable" that the loan portfolio has been impaired at 20 that date, and the amount of loss can be "reasonably estimated." FAS 5, AICPA § 21 9.32. If available facts and circumstances indicate that it is "probable" that a loan 22 or portfolio of loans has been impaired at the balance sheet date, such a conclusion 23 applies to the entirety of the loan, not to one year's portion thereof. FAS 5 makes 24 no mention of one-year's worth of interest and principal, and thus, there is no time 25 period limitation on when the loss is probable. When charge-off eventually occurs, 26 the entire loss on the loan is recorded, and the entire loan removed from the 27 Company's books and records. 28

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317. Thus, expending 85% of the ALL in the very first year indicates that 1 the ALL was inadequate by many multiples. Moreover, IndyMac ultimately 2 exceeded its $62.4 million 2006 year-end ALL in the next quarter, taking a $46 3 million charge-off on uncollectible LHFIs in the first quarter of 2008. Thus, by 4 the end of first quarter 2008, IndyMac had already accumulated charge-offs 5 equal to 160% of the $62.4 million ALL set at the end of 2006, with a growing 6 number of defaults still coming down the pipeline. The following chart, derived 7 from IndyMac's SEC filings, shows the increases to ALL and actual loan losses 8 9 during the Class Period:

10 FY 2006 1Q2007 2Q2007 3Q2007 4Q2007 FY2007 1Q2008 11 ALL Reserve $62.4M $67.6M $76.8M $161.7M $398.OM $398M $483M Balance (m) 12 HFI Charge-offs $12.8M $4M $8M $13 AM $27M $52.2 $46M 13 (aka "Realized Credit Losses")8 14 BFI "Credit $20M $10.7M $17.2M $98.3M $269M $395.5M $131.5M 15 Costs" (i.e., increases to ALL) 16 318. Because IndyMac entered bankruptcy, it filed no quarterly or annual 17 financial statements with the SEC after that point, and had no opportunity to restate 18 earlier periods. 19 319. While it is impossible to calculate the exact degree by which IndyMac 20 under-reserved in light of the lack of access to IndyMac's internal reports, the most 21 appropriate proxy is adding (a) charge-offs on that same portfolio of loans and (b) 22 increases to ALL on that same portfolio of loans. Under this measure, IndyMac 23 under-reserved by at least 400% at the outset of 2007, when it decreased ALL in 24 the face of rising NPAs, delinquencies and loan losses. However, this is simply a 25 8 These numbers do not include charge-offs and reserves for the $10.3 billion in 26 loans transferred from the loans held-for-sale portfolio to the loans held-for- 27 investment portfolio. Those assets were marked down by over $400 million upon transfer, and incurred over $80 million in losses in the first quarter of 2008. 28

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proxy; under the express provisions of GAAP, ALL is not a forecast of future 1 charge-offs. Rather, it is measured by current internal and external conditions at 2 the time the reserve is calculated. Thus, regardless of what the future charge-offs 3 ultimately were, IndyMac's ALL was egregiously low throughout the Class Period 4 based on the facts known at the time: increasing delinquencies, increasing NPAs, 5 increasing realized loan losses, decreasing property values, and deficient 6 underwriting. Furthermore, any comparison to "actual" charge-offs would require 7 8 the highly unreasonable assumption that, despite failing to remedy internal control 9 deficiencies and grossly misstating and underestimating its ALL and Secondary 10 Market Reserves throughout the Class Period, Defendants recorded timely and 11 sufficient charge-offs. 11. Post-Class Period Improprieties and GAAP Violations 12 Confirm that Defendants' Manipulation of IndyMac's 13 Financial Statements was Deliberate. 14 320. Ernst and Perry committed other financial improprieties that 15 demonstrate their disregard for requirements of presenting fair and accurate 16 financial disclosures to investors. As reported on December 22, 2008, Treasury 17 18 Department Inspector General's investigation of IndyMac uncovered that, on May 19 9, 2008, Ernst had permitted IndyMac to backdate cash infusions from the holding company back to March 31, 2008. This backdated transaction was done to 20 maintain the illusion that IndyMac was a well-capitalized institution when, in fact, 21 it was not well-capitalized at that date. In fact, Perry falsely asserted that IndyMac 22 remained well-capitalized at the May 12, 2008 conference call. 23 321. This improper backdating plainly violated GAAP, and misled 24 investors, who had a right to know that IndyMac was not "well-capitalized" as of 25 March 31, 2008, or, at the very least, had the right to know that IndyMac was only 26 well-capitalized due to a backdated capital infusion. This type of fraud is 27 presumably what led one OTS examiner to suggest, in April 2008, that OTS 28

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1 publicly disclose IndyMac's financial condition to prevent further losses by, and 2 liability to, IndyMac investors. It also speaks to Defendants' willingness to knowingly commit fraud and to mislead not just investors, but those charged with 3 regulating IndyMac, including arms of the Federal government. 4 322. The Treasury Department subsequently conducted a follow-up report 5 on the back-dating at IndyMac. As explained above, the Treasury Department 6 Backdating Report concluded that the backdating was improper because "the 7 accounting treatment is not in accordance with generally accepted accounting 8 9 principles (GAAP) and allows for misleading financial reporting by the thrifts." 323. Ernst's workpapers presented to the Inspector General showed that the 10 11 backdating occurred in April 2008. A further investigation by the Inspector 12 General revealed that the backdating in fact occurred on May 9, 2008. Thus, Ernst misrepresented to federal authorities facts regarding the backdating of a capital 13 infusion. This conduct strongly implies that Ernst was not acting as an 14 independent auditor when it certified IndyMac's 2006 and 2007 Form 1OKs, and 15 was instead motivated by its close relationship with IndyMac and the substantial 16 fees it was earning from the engagement (over $3.5 million in 2006, and over $6 17 million in 2007). 18 324. The SEC Complaint against Perry and Keys charges that Perry 19 authorized IndyMac to contribute $18 million to IndyMac Bank on May 9, 2008, 20 but to backdate that amount as if it were contributed on March 31, 2008. The SEC 21 Complaint also adds new facts demonstrating Perry's active involvement in 22 concealing the backdating. Specifically, IndyMac's draft first quarter 2008 Form 23 8-K accurately stated that "IndyMac contributed $70 million to... [IndyMac] Bank 24 during Q1 08 and another $[18] million on May 9th." However, Perry changed the 25 draft so that the final 8-K falsely stated that IndyMac "contributed $88 million to 26 the Bank during Q 1 08," as though the $18 million was contributed on March 31, 27 2008. SEC Complaint ¶¶ 49, 53. Perry admits that the IndyMac backdating 28

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1 occurred on May 9, 2008 "with the knowledge and approval" of "IndyMac's outside auditors at Ernst & Young," among others. Perry Answer at ¶ 49. 2 325. In addition to authoring and certifying the aforementioned financial 3 statements, Perry and Keys repeatedly and falsely boasted that IndyMac's credit 4 reserves were not only adequate and proper, but that they were "conservative." For 5 example: 6 (a) "[W]e have conservatively built up our credit reserves well 7 ahead of credit losses." Statement by Perry, on April 26, 2007, IQ Earnings Call 8 With Securities Analysts and Investors. 9 (b) "[W]e were still more conservative on our Alt-A and subprime 10 11 residuals than the values that they did after they wrote them down. That's all I can say now.... I think we feel very comfortable that [our residuals] are valued 12 properly and conservatively and that we have a lot of credit reserves there." 13 Statement by Perry, on April 26, 2007, IQ Earnings Call With Analysts and 14 Investors. 15 (c) "Credit reserves prudently increase well ahead of credit losses. 16 IndyMac continued to prudently increase allowance for loan losses in the face of a 17 difficult credit environment." Exhibit 99.2 to IndyMac's, April 26, 2007 Form 8- 18 K, signed by Keys. 19 (d) "[W]e feel we prudently manage [noninvestment grade and 20 residual securities] and continue to be very conservative in valuing these 21 securities." Statement by Perry, on July 31, 2007 2Q 2007 Earnings Call. 22 (e) "Long term, with our strong capital, reserves, and liquidity and 23 with the great team we have in place, there is no doubt that we will be a mortgage 24 industry survivor[.]" November 6, 2007 posting on the IMB Blog (quoting Perry). 25 (f) "[W]e do believe we will see significant improvement in the 26 fourth quarter and in 2008 given the large reserves we established this quarter." 27 November 6, 2007 posting on the IMB Blog (quoting Perry). 28

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(g) "We believe that the credit reserves we have now built up are 1 2 sufficient to absorb these charge-offs such that we are currently forecasting that our total credit provision/costs in 2008 will be roughly $372 million, down from 3 $1.45 billion in 2007, which we believe will have a significant positive impact on 4 our drive to return IndyMac to profitability in 2008.... We have the capital ... to 5 absorb nearly triple our presently forecasted 2008 credit costs and fight our way 6 through until the housing and mortgage markets do stabilize." IndyMac 7 February 12, 2008 Press Release (quoting Perry). 8 (h) "We have an incredibly strong war chest of credit reserves at 9 10 the end of '07." Statement by Perry, on February 12, 2008 4Q 2007 Earnings Conference Call. 11 (i) "We've reserved properly. I don't think [our regulators are] 12 going to have concerns about our reserves." Statement by Perry, on February 12, 13 2008 4Q 2007 Earnings Conference Call. 14 0) "We believe we have a very realistic forecast [for a profitable 15 2008] given the reserves that we built up at 12/31/07." Statement by Perry, on 16 February 12, 2008 4Q 2007 Earnings Conference Call. 17 (k) "[T]he point that I would make is we built up incredibly strong 18 19 reserves at the end of '07, okay?" Statement by Perry, on February 12, 2008 4Q 2007 Earnings Conference Call. 20 (1) "We remain in a fundamentally sound financial position.... 21 We believe we can maintain our `well-capitalized' capital ratios even under 22 worsening industry conditions.... We still have a solid cushion above the well- 23 capitalized ratios." February 12, 2008 Form 8-K (signed by Perry and Keys) and 24 February 12, 2008 Annual Shareholder Letter (signed by Perry). 25 326. These statements were false and misleading for the same reasons that 26 27 IndyMac's ALL, and statements related specifically thereto, were falsely stated. IndyMac`s loan loss reserves were not even within the realm of reason, let alone 28

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1 "conservative" or "incredibly strong." There is a strong inference that Perry and Keys made the foregoing statements with scienter for all of the reasons stated 2 above with respect to ALL itself. 3 H. Perry And Keys Make Additional False and Misleading 4 Statements Regarding IndyMac's Credit and Loan Loss Reserves 5 and the Financial Soundness of the Bank 6 327. In addition to the ALL, which was a reserve attributed to probable 7 losses in IndyMac's portfolio of loans held for investment ("LHFI"), IndyMac also 8 9 maintained Secondary Market Reserves to cover probable losses related to loans 10 which IndyMac sold to investors in the secondary market, but for which IndyMac retained a "residual interest." Residual interests arise when a seller of loan retains 11 some stake in, or ongoing obligation relating to, loans sold to third parties. 12 Residual interests include, among other things, the right to service the loans, 13 warranties and/or representations made at the time of sale regarding the purported 14 15 conformity of such loans with stated underwriting guidelines (whether originated by IndyMac or acquired), or, similarly, the credit quality and performance of such 16 loans, or buyback provisions that might arise in the event of early payment default 17 by the borrower or other examples of the loans' failure to adhere to the warranties 18 19 of quality and performance afforded the secondary market participants by a seller of loans such as IndyMac. IndyMac stated, in its 2006 Form 10-K, that its 20 Secondary Market Reserves related to the potential obligation to repurchase whole 21 loans, loans sold to Government-Sponsored Enterprises ("GSEs"), or loans sold in 22 securitizations to investors. Thus, IndyMac's Secondary Market Reserve related to 23 two of the primary residual interests mentioned above: (1) reserves for 24 representations and warranty claims, and (2) reserves for repurchases arising from 25 early payment defaults. 26 328. Like the ALL, the Secondary Market Reserve was a critical 27 accounting policy for IndyMac, and, as Defendants knew, calculation of this 28

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1 reserve had a material impact on the Company's financial statements. The combination of the ALL and Secondary Market Reserve comprised about 95% of 2 what the Company referred to, in its 2006 Form 10-K, as "Credit-related reserves" 3 as of December 31, 2006. 4 329. In the face of substantial internal and external market factors 5 contributing to the deterioration of loan quality throughout 2006 and 2007 the 6 amount of IndyMac's repurchases from defective loans and from early payment 7 defaults rose dramatically. Similar to IndyMac's accounting for the ALL, 8 9 however, IndyMac's treatment of Secondary Market Reserves violated the 10 principle of "directional consistency" described within the InterAgency Policy 11 Statement, demonstrating that the Secondary Market Reserves maintained by IndyMac as of December 31, 2006 were understated. 12 330. Specifically, despite all of the foregoing negative internal and external 13 factors impacting the quality of loans sold by IndyMac through secondary markets, 14 and all of the factors that evidenced the decline of the real estate and mortgage 15 industries discussed herein, IndyMac's Secondary Market Reserves as a percentage 16 of loans sold significantly declined — i.e., from 52.85% at the end of 2005 to 17 42.93% at the end of 2006, as shown in the following chart: 18

19 12/31/05 SMR $27,63800 20 Loans Sold $52,2979000 = 52.85% 21 12/31/06 SMR $33,932,000 22 Loans Sold $79,049,00 = 42.93% 23 331. This decline resulted from, and demonstrates, the same disregard by 24 IndyMac of the principle of "directional consistency" evident in IndyMac's 25 treatment of its ALL during the Class Period. Ultimately, the shortfall in 26 Secondary Market Reserves manifested itself when, from 2005 to 2007, the 27 number of loans that IndyMac was required to repurchase because of breached 28

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1 warranties and early payment defaults increased dramatically — i.e., from $108 2 million in 2005, to $194 million in 2006, to $613 million in 2007. As result, the Secondary Market Reserves maintained by IndyMac were woefully short of the 3 volume of loans it was forced to repurchase during the Class Period. In fact, loan 4 repurchases in 2006 and 2007 exceeded the Secondary Market Reserves 5 established at year-ends (i.e., December 31, 2005 and December 31, 2006) by 6 698% and 1808%, respectively, as shown in the following chart: 7 12/31/05 SMR $27,638,000 8 2006 Total Loans Repurchased $1941000,000 = 698% 9 12/31/06 SMR $33,932,000 10 2007 Total Loans Repurchased $613,0001000 = 1808% 11 332. This decline demonstrates IndyMac's failure to adequately record and 12 maintain Secondary Market Reserves during the Class Period. Specifically, this 13 chart demonstrates quite clearly the magnitude by which Secondary Market 14 Reserves maintained by IndyMac were inadequate and wholly disconnected from 15 the true obligations such reserves were meant to cover in order to prevent massive 16 losses by IndyMac. In simpler terms, IndyMac was forced to repurchase, in 2006, 17 close to seven times the dollar value of loans it had reserved for in its Secondary 18 19 Market Reserves of December 31, 2005, and it was forced to purchase, in 2007, more than 18 times the losses it had estimated as of December 31, 2006. 20 333. In its 2007 10-K, IndyMac, for the first time, included a section 21 entitled "Credit Reserves Embedded in Non-Investment Grade and Residual 22 Securities," in which the Company explained more fully that the deteriorating 23 credit market forced it to retain and repurchase more of its "non-investment grade 24 and residual securities," which it had historically sold into the secondary market. 25 IndyMac stated: "worsening loan performance has necessitated an increase in the 26 amount of credit losses estimated in these securities." In connection with its Non- 27 investment grade and residual securities, the Company reported that "net realized 28

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credit losses" increased from $25 million in 2005, to $27 million in 2006, to $235 1 million in 2007, yet its "credit reserves" as a percentage of "non performing 2 assets" had been cut almost in half from 2005 to 2006 — from 140% at year end 3 2005, to 77% at year end 2006, rising only to 78% at year end 2007. 4 334. The SEC Complaint against Abernathy offers additional evidence that 5 6 IndyMac's Secondary Market Reserves were inadequate and that Defendants knew 7 or were deliberately reckless in disregarding the extensive borrower misrepresentations in IndyMac loans, and that such breaches of warranties would 8 9 likely mean that IndyMac would be forced to repurchase the loans, requiring 10 massive increases in the reserves covering those losses. The Abernathy Complaint 11 identifies six residential MBS offerings conducted by IndyMac through IndyMac Mortgage Loan Trust ("IMSC") to the secondary market from May 29, 2007 12 through August 30, 2007, totaling about $2.5 billion, securitizing only loans 13 produced by IndyMac's Conduit Division. Abernathy Complaint ¶¶ 15, 21. 14 According to the SEC, each of those six offerings misrepresented the quality of the 15 loans underlying the offerings, including false statements about borrower income, 16 employment, appraisals and other information on the applications for those loans. 17 Monthly reports issued by IndyMac's PPQC unit before and during the offering 18 19 period indicated that 12% to 18% of its loans, including loans underlying the six offerings, contained misrepresentations of borrower income, employment, 20 appraised value of the property, true identity of the borrower, and other 21 misrepresentations, all of which increased the likelihood of default. Id. at ¶¶ 16- 22 19, 23. Thus, these six offerings in 2007 totaling $2.5 billion would certainly 23 cause increased losses in the Secondary Market reserves when the repurchase 24 obligations were triggered. Defendants knew about the risk in these offerings 25 because the misrepresentations were described in the PPQC reports issued in this 26 period, and were available to Defendants on IndyMac's intranet. Id. at ¶ 20. 27 28

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VIII. DEFENDANTS' FALSE AND MISLEADING STATEMENTS 1 PROXIMATELY CAUSED ECONOMIC LOSS TO INDYMAC'S 2 INVESTORS 3 335. Defendants' misrepresentations and omissions caused and maintained 4 the artificial inflation in IndyMac's stock prices throughout the Class Period until 5 the truth was revealed to the market. 6 336. Defendants' statements during the Class Period concealed the 7 Company's improper lending practices, including its lax underwriting and 8 9 improper appraisal practices, as well as the true extent of the Company's loss 10 exposure with respect to both (a) the progressive and prospective impact of 11 deficient underwriting practices, and (b) IndyMac's misguided foray into riskier loan products and markets. Further, Defendants' failure to account for IndyMac's 12 practices of appraisal inflation, deficient underwriting, and ineffective internal 13 controls when determining the ALL and Secondary Market Reserves resulted in 14 the Company's financial statements being materially false and misleading. As 15 explained in detail above at ¶¶ 140-151, there was an inextricable link between 16 IndyMac's (1) failure to follow established underwriting and lending guidelines, 17 (2) lack of internal controls surrounding both underwriting and the computation of 18 19 loan loss reserves and Secondary Market Reserves, and (3) inaccurate financial statements. Together, Defendants' misrepresentations concealed crucial 20 information about IndyMac's true credit risks and loss exposure, and caused the 21 market to overvalue IndyMac by way of an inflated per share stock price. 22 337. The Company's piecemeal disclosures of increased and growing 23 credit losses and loan loss reserves revealed previously concealed adverse 24 information about IndyMac's financial health — specifically regarding its true 25 credit risks and the magnitude of those risks, its ineffective internal controls, and 26 its true loss exposure — and those disclosures are causally linked to the resulting 27 declines in IndyMac's stock price. 28

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338. First, as alleged, Defendants' fraudulent actions and 1 misrepresentations regarding the quality of IndyMac's underwriting and loss 2 reserving process caused the Company's loan loss reserves to be knowingly and 3 materially understated because IndyMac faced materially greater risk of losses than 4 disclosed or recorded in its financial statements. Because Defendants fraudulently 5 overstated the quality of IndyMac's underwriting and loss reserving practices and 6 methodologies, Defendants caused the market to misunderstand, and 7 underestimate, IndyMac's expected credit losses. Similarly, IndyMac's 8 9 undisclosed reliance on fraudulently inflated appraisal values had the effect of 10 overstating the value of the collateral attached to its loan and mortgage-related assets, and understating loan to value ratios, which are important metrics used by 11 investors and others in evaluating the quality of loan portfolios. 12 339. Second, it is clear that underwriting and credit quality, credit losses, 13 and loan loss reserves are crucial metrics in evaluating the performance of a 14 lending institution. Even a cursory review of the reports issued by securities 15 analysts that covered IndyMac, and the transcripts of IndyMac's conference calls 16 with analysts, confirms that analysts focused specifically on credit quality, credit 17 losses, and loan loss and residual reserves as critical metrics in evaluating the 18 19 Company's financial performance and condition. 340. Third, there was a coherent economic and logical link between 20 Defendants' misstatements and the decline in IndyMac's stock price because 21 Defendants' actions in fraudulently overstating the quality of IndyMac's 22 underwriting practices and loss reserving methodologies made it entirely 23 foreseeable that the Company would, at some point, be required to incur larger 24 than expected credit losses and record greater loss reserves, resulting in declines in 25 the market price of IndyMac stock when such losses, including those incurred from 26 the recognition of and increase in substantial credit reserves, were incurred. 27

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341. Thus, Plaintiff's allegations that the Company and Defendants 1 fraudulently withheld and misrepresented information regarding the nature and 2 3 magnitude of the losses to which IndyMac was subject, its practices to effect purported management of such risks, as well as IndyMac's appraisal and 4 5 underwriting practices, and its loss reserving process, demonstrate the causal link, both economically and logically, between those misrepresentations and the 6 declines in IndyMac's stock prices. 7 342. Indeed, in each of the corrective disclosures detailed below, IndyMac 8 9 revealed evidence of deteriorating financial performance, specifically including 10 substantially greater than expected credit losses and the need for increases in loss 11 reserves. These disclosures directly contradicted the Defendants' numerous and repeated statements to the effect that the Company's loss exposure was contained 12 13 and properly managed. Immediately after each one of these partial disclosures, many of the analysts following IndyMac downgraded their ratings on IndyMac 14 stock and/or lowered their earnings estimates, and in doing so, specifically cited 15 16 the Company's increased credit losses and loss reserves. The analyses of analysts, summarized below, strongly support the conclusion that IndyMac's 17 partial disclosures with respect to credit losses and loss reserves contributed 18 19 materially to the declines in IndyMac's stock price. 343. The truth about IndyMac's financial condition and the true risks 20 associated with its mortgage-related assets began to enter the market with a series 21 of partial disclosures and revelations beginning on November 6, 2007, and 22 continuing to May 12, 2008 and thereafter. Defendants mitigated the impact of 23 those disclosures and prevented the full truth about IndyMac from being revealed 24 by making contemporaneous false and misleading statements that minimized and 25 denied the facts being revealed to the market. As a result of Defendants' 26 continuing misrepresentations and denials, the artificial inflation in IndyMac's 27 stock price did not come out of the stock price all at once, but rather came out over 28

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time, in bits, pieces, and spurts, as the stock continued to trade at artificially 1 inflated, albeit lower, prices throughout the Class Period. 2 344. Ultimately, as the market gained a more complete understanding of 3 4 the magnitude of the loss exposure facing IndyMac and the implications for IndyMac's financial condition and continued solvency and viability, the price of 5 IndyMac's common stock plummeted more than 90%, falling from a Class Period 6 high of $37.50 per share on June 6, 2007, to $2.32 per share at the close of trading 7 on May 13, 2008. As set forth in detail below, these enormous declines in 8 9 IndyMac stock prices were the result, at least in part, of the truth emerging about 10 IndyMac's improper underwriting and appraisal practices, serious internal control deficiencies, larger than expected credit losses, huge increases in loan loss 11 reserves, and the severe liquidity crisis the Company was experiencing during the 12 Class Period. 13 345. Plaintiff and the Class have suffered damages in that, in reliance on 14 the integrity of the market, they paid artificially inflated prices for IndyMac stock. 15 When the truth about IndyMac was revealed to the market, and the risks that 16 Defendants fraudulently concealed materialized, the price of IndyMac's stock 17 declined in response, as the artificial inflation caused by Defendants' material 18 omissions and false and misleading statements was removed from the price of 19 IndyMac securities, causing substantial damage to Plaintiff and members of the 20 Class. 21 346. The disclosures beginning on November 6, 2007, and continuing 22 through May 12, 2008, specifically concerned, inter alia, accounting and internal 23 control issues, credit losses and reserves, and capital and liquidity position issues, 24 of which Perry and Keys had knowledge, and with which Ernst was directly 25 involved and aware of in conducting its 2007 audits. 26

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A. Defendants' First Partial Disclosure 1 347. On November 6, 2007, less than two months after Perry specifically 2 reassured the market about IndyMac's purportedly "strong" and "prudent" risk 3 management, the Company issued a press release revealing that it lost $202.7 4 million in the third quarter of 2007, or $2.77 per share, and that it expected its loan 5 loss provisions to grow to as much as $1.39 billion in the fourth quarter. 6 348. The loss announced on November 6, 2007 was well above analysts' 7 estimates and also far exceeded IndyMac management's guidance of $.50 earnings 8 9 per share for the third quarter, which Defendants provided to the market just four 10 weeks before announcing losses of -$2.77 per share. Significantly, Defendants 11 admitted that the third quarter losses were "drive[n]" by increased credit reserves, and disclosed that provisions for future credit losses had been increased 47%, to 12 $1.39 billion. IndyMac also revealed on November 6, 2007 that 63% of the $408 13 million 6f third quarter 2007 credit costs were related to riskier loan products — 14 HELOCs and Second Liens — as well as losses in the Homebuilder Division. 15 349. Also on November 6, 2007, Perry hosted the Company's Third 16 Quarter 2007 earnings conference call with analysts. During that conference call, 17 and in a PowerPoint presentation made available on the Company's website, and 18 filed with the SEC in a Form 8-K signed by Keys, Perry blamed the following 19 factors for IndyMac's loss, thereby partially disclosing some of the previously 20 undisclosed risks: 21 (1) sharply increasing delinquency trends at IndyMac and for the 22 industry, especially for seconds in second mortgages; 23 (2) worsening existing and new housing sales trends led to a 24 substantial rise in non-performing loans in IndyMac's Homebuilder portfolio; 25 (3) a significant ramp up in loan delinquencies and foreclosure 26 rates to a level above the 20-year high that was reached in the second quarter of 27 2002; 28

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(4) that the Company "substantially bolstered [its] loan loss 1 2 provision, the bulk of which is going to [its] subdivision construction business where we I think increased the provision there something like $75 million in the 3 quarter"; and 4 (5) dramatically increased provisions for future credit losses, 5 including the increasing of credit reserves by 47%, to $1.4 billion. 6 350. Increases to ALL — reflecting the inadequacy of IndyMac's prior 7 reserves and the undeniable manifestation of declining market conditions, which 8 9 were known, or should have been known, to Defendants — was a leading cause of IndyMac's third quarter losses. ALL increased by an astonishing 471% in 3Q 10 2007, more than any other credit cost. According to IndyMac's earnings 11 presentation, increases to ALL accounted for losses of $0.59 per share during that 12 one quarter. Credit marks on delinquent loans held-for-sale accounted for losses of 13 $.44 per share, and credit marks on current loans held-for-sale accounted for losses 14 of $.54 per share. Both markdowns reflected the poor underwriting and inadequate 15 collateral values on those loans. As one of IndyMac's presentation slides stated: 16 17 "Key Driver of Q3 07 Loss Was Increased Provisions for Future Credit Losses." 351. In the November 6, 2007 presentation, IndyMac also announced the 18 19 closing of the Conduit Division, which, as discussed throughout this Complaint, was riddled with internal control problems. The Conduit Division accounted for 20 $59 million of after tax losses in the third quarter of 2007 alone. And, despite 21 being closed in Fall 2007, the Conduit Division would ultimately account for 18% 22 of IndyMac's net losses in 2007. These disclosures, including the revelation that 23 IndyMac was closing the Conduit Division, revealed adverse information about the 24 Conduit Division that Defendants' misrepresentations had previously concealed, 25 and therefore loss causation exists as to the Conduit Division allegations. 26 352. In addition, IndyMac revealed on November 6, 2007 that the 27 Homebuilder Division — which had been shut down in 2007, just six months after 28

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IndyMac declared it to be a "very prudent business" for the Company, and which 1 had been cited in numerous audits as an internal control problem — accounted for 2 15% of IndyMac's 2007 net losses. The November 6, 2007 presentation disclosed 3 4 that non-performing Homebuilder assets were expected to rise to $330M in the fourth quarter of 2007 — reflecting 30% of all Homebuilder assets. As IndyMac 5 revealed, the Homebuilder Division's portfolio "is showing rapid deterioration as 6 home sales and home prices decline — necessitating a larger allowance for losses.". 7 IndyMac further admitted in the same presentation that "[e]ven though we reduced 8 9 our exposure (as a percentage of assets) to Homebuilders ... we should have 10 reduced it even further." 353. Also on November 6, 2007, Defendants issued a Form 10-Q for the 11 quarterly period ended September 30, 2007 ("Third Quarter 10-Q"), which 12 provided additional disclosures regarding IndyMac's Homebuilder Division. 13 14 Specifically, the Third Quarter 10-Q noted that IndyMac's Homebuilder portfolio had serious problems, "resulting in an increase in classified and non-performing 15 loans and our allowance for loan losses at quarter-end. All loans in the portfolio are 16 assigned a credit grade quarterly.. .. At September 30, 2007, non-performing 17 loans for the builder construction portfolio rose to 9.03%, or $106.1 million, from 18 19 0.78%, or $9.0 million, at December 31, 2006, and zero at September 30, 2006." 354. The disclosures and admissions set forth above, revealed adverse 20 information about the Homebuilder Division that Defendants' misrepresentations 21 had previously concealed, and therefore loss causation exists as to the 22 Homebuilder Division allegations. 23 355. In the November 6, 2007 conference call, Perry also made numerous 24 admissions regarding the Company's deficient underwriting and risk management 25 practices, openly admitting that (a) "credit risk management needs to improve" 26 (b) "in hindsight, we could have expanded more cautiously from 2005 to 2007," 27 (c) " [w/e went too far in expanding our product; (d) "We took too much 28

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exposure from Seconds, HELOC, and Subprime"; (e) Clearly this quarter, we've 1 done a poor job managing credit risks and a poor job overall on an absolute 2 bases"; and (f) "[olur underwriting procedures failed to detect speculators." 3 356. Acknowledging that IndyMac's prior risk control and underwriting 4 practices had been deficient, Perry stated that "IndyMac has also taken appropriate 5 steps to make the hard lessons learned about credit risk permanent," including (a) 6 "implementing companywide a `Principles of Credit Underwriting'... [which] 7 management, underwriters, and others involved in credit process must sign"; (b) 8 9 establishing an "early detection and accountability system for current production 10 and new products... that are designed to prevent credit mistakes from becoming major costs"; (c) making IndyMac's "Chief Investment Officer, who is 11 independent of production and secondary marketing, ... solely responsible for all 12 non-GSE products, guidelines, and risk-based pricing, because the Thrift might 13 own them any time the secondary market becomes disrupted"; and (d) 14 "reorganize[ing] and upgrade[ing] our regional CEOs, and will now hold them 15 fully accountable for both production and credit quality." 16 357. Perry further admitted that IndyMac's Alt-A delinquency rate was 17 now 7.3%, which was higher than the industry average of 6.85%, and was trending 18 19 upwards relative to the industry. This indicated that the risks created by IndyMac's extensive participation in the risky Alt-A market and concomitant 20 deficient underwriting practices were materializing in the form of higher 21 delinquencies. 22 358. In response to these disclosures, analysts downgraded their ratings of 23 IndyMac, citing concerns over the Company's credit problems, increases in loan 24 loss provisions, and its ability to maintain its dividend. For example, on November 25 7, 2007, RBC issued a report lowering its rating of IndyMac from "Outperform" to 26 "Sector Perform," and raising its risk rating from "above average risk" to 27 "speculative risk." RBC explained that the downgrade reflected concern about the 28

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"percolating" "credit problems" at IndyMac. RBC also lowered its earnings 1 2 estimates for IndyMac, noting that the $2.77 per share loss for the third quarter of 2007 was "well below our estimate and guidance," and "much more material" than 3 the earnings guidance provided by Company management. RBC noted that 4 increasing non-performing assets at IndyMac, which "jumped 61% [quarter to 5 quarter] to $829 million," together with increased loan loss reserves, charges, and 6 "[m]ortgage market challenges and likelihood of further credit performance 7 erosion," all called for reduced earnings estimates. 8 359. RBC specifically noted that IndyMac's fundamental failure to ensure 9 10 basic loan underwriting practices were in place and being followed had created the 11 credit losses and consequent increased reserves at IndyMac: "[c/redit weakness thus far has largely been driven by weak underwriting standards." RBC's 12 analysis is entirely consistent with Plaintiff's allegations regarding deficient 13 internal controls at IndyMac, and is consistent with the findings with respect to 14 ineffective internal controls of Ernst, the OTS, IndyMac's internal audit 15 department, and a separate independent accountant engaged by IndyMac during the 16 Class Period to look at IndyMac's computation of ALL. 17 360. In this November 7, 2007 report, RBC also expressed concern with 18 19 IndyMac's disclosure of sharply increasing non-performing assets and the fact that "IMB increased loan loss reserves 47% during the quarter to $161 million or 20% 20 of NPAs." In issuing its ratings downgrade, RBC specifically identified "higher 21 reserving for losses" as one of the key "credit-related factors" negatively 22 impacting earnings in the third quarter. 23 361. Also on November 7, 2007, Wachovia significantly reduced its 24 earnings estimates for IndyMac, specifically citing "increased credit loss 25 provision assumptions for 2008. " Wachovia noted that "[IndyMac] management 26 is ... projecting total [non-performing assets] to climb to 3.55% in Q4," and "[a]s 27 such, we increased our credit loss provision assumptions for 2008, significantly 28

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reducing our EPS outlook." Wachovia specifically noted that the "most troubled 1 area was the homebuilder construction portfolio, where NPAs soared 165% in the 2 quarter to $106.1 mm and are expected to increase by another $224mm by year 3 end." Wachovia explained that while total net charge-offs for the third quarter 4 2007 remained "relatively low at only $13.4mm (given total NPAs of over 5 $828mm)," "they [i.e. IndyMac management] are obviously expecting more with 6 the build in the loss reserve." This analysis, however, did not suggest that 7 IndyMac's performance would be strong going forward as a result of increased 8 9 credit-related reserves, nor did it anticipate that future losses would be adequately 10 covered by then-existing reserves. Instead, Wachovia's analysis of Defendants' disclosures led Wachovia to reduce its earnings estimates —precisely because of 11 the rising delinquencies and the need for credit loss reserves. This analysis was 12 followed by a 16.9% drop in IndyMac's stock price, clearly illustrating the causal 13 linkage between Defendants' prior misrepresentations about loss reserves, the 14 partial disclosure of the truth regarding reserves, and the declines in IndyMac's 15 stock prices. Further, this analysis demonstrates the critical significance (and 16 obvious materiality) of information regarding IndyMac's credit losses and credit 17 reserves to investors. 18 362. Likewise, in a November 9, 2007 report, Fox-Pitt Kelton Cochran 19 Caronia Waller ("Fox-Pitt") lowered its earnings estimates for IndyMac. In a 20 report entitled "Credit Charges Drive Wider than Expected Loss," issued on 21 November 7, 2007, Fox-Pitt explained that IndyMac's third quarter loss of -$2.77 22 per share was "well above our -$0.50 estimate and [management's] internal 23 guidance of $0.50 p/s, which they provided just three weeks before quarter end." 24 363. Analysts specifically recognized the connection between IndyMac's 25 abysmal underwriting standards and the credit losses caused by IndyMac's risky 26 loans, which in turn required higher than expected loan loss reserves. For 27 example, as noted above, in its November 7, 2007 report downgrading IndyMac 28

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1 stock, RBC stated that IndyMac's "[c/redit weakness thus far has largely been driven by weak underwriting standardsff' As RBC observed, "IMB has changed 2 its underwriting standards to conform to GSE standards over the past 90 days ... but 3 now credit performance is a more material concern," indicating that IndyMac's 4 5 prior underwriting standards were not in line with those required for GSE-eligible loan products. Similarly, Wachovia noted in its November 7, 2007 report that 6 "tighter underwriting standards.... should help credit performance and restore some 7 faith in the secondary market," though it did not "anticipate this happening in the 8 9 near-term as evidenced by our new [i.e. lower] estimates." 364. The Company's partial disclosures on November 6, 2007 caused 10 11 IndyMac's common stock to plummet, dropping from a closing price of $12.49 on November 6, 2007 to a closing price of $10.38 on November 8, 2007, on high 12 volume — a two-day decline of $2.11, or 16.9%. By comparison, the S&P Bank 13 Index (symbol: BIX) declined only 5.9% over the same two days. 14 365. This substantial price drop immediately following the disclosures of 15 delinquencies trending upwards, a massive increase in non-performing loans, and 16 huge increases loan loss allowance demonstrates that the artificial inflation in the 17 stock price caused by, among other things, nondisclosure of faulty and/or deficient 18 19 underwriting and appraisal practices, inadequate risk management, and inadequate loan loss reserves, had been partially dissipated. Each of these improprieties 20 would reasonably be expected to contribute to subsequent increases in non- 21 performing assets and the need for further and significant write-downs to 22 IndyMac's LHFI portfolio and residual interests. 23 366. Defendants prevented an even steeper decline in the price of IndyMac 24 stock by Perry falsely assuring investors on November 6, 2007, that "our liquidity 25 is at an all-time high," and representing that "once we get through these credit 26 costs, [IndyMac will be] generating significant income because not all of those 27 loans are bad." Similarly, in a November 6th post on IndyMac's blog (the "IMB 28

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Blog"), Defendants bragged that even with the third quarter 2007 loss, "we have 1 very strong capital, reserves and liquidity to weather the current storm in our 2 industry," and that "we are considered `well capitalized' by regulatory 3 standards." The Company also claimed in the blog post that "[w]e have $1.39 4 billion in reserves for future credit losses, or 9.5 times our current quarter's charge- s offs," and that "[w]e increased our total liquidity from $4.1 billion at the end of the 6 second quarter to a record $6.3 billion at the end of the third quarter, and are 7 confident that our liquidity position will remain strong going forward." 8 367. Also in the November 6, 2007 IMB Blog post, the Company reassured 9 10 investors that "we do believe we will see significant improvement in the fourth quarter and in 2008 given the large reserves we established this quarter[.]" 11 Continuing to tout the Company's purportedly "strong" capital, reserves, and 12 liquidity, Defendants concluded the November 6, 2007 IMB Blog post by 13 reassuring investors that: "Long term, with our strong capital, reserves and 14 liquidity and with the great team we have in place, there is no doubt that we will 15 be a mortgage industry survivor, and we are confident that our returns on capital 16 will be at or above 15% once this current down cycle ends." 17 368. The foregoing statements painted a wholly inaccurate picture of 18 19 IndyMac's financial condition at November 6, 2007, and were all materially false and misleading. As demonstrated herein, Defendants intentionally or with 20 deliberate recklessness disregarded the numerous facts and information available to 21 them indicating that IndyMac's financial condition was much more fragile than 22 Defendants were willing to admit. 23 B. Defendants' Second Partial Disclosure, Which Was Accompanied 24 by Multiple False and Misleading Statements 25 369. On February 12, 2008, just three months after assuring investors about 26 the "significant improvement" Defendants expected in the fourth quarter, 27 specifically as a result of the purportedly "large reserves we established in [the 28

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third] quarter," IndyMac announced in a press release that it would post a record 1 loss for the fourth quarter of 2007, the result of a record increase in credit reserves. 2 The Company reported a net loss of $509.1 million, or -$6.43 per share, for the 3 4 fourth quarter of 2007, compared with net earnings of $72.2 million, or $0.97 per share, in the fourth quarter of 2006. As set forth below, analysts expressed surprise 5 6 at the magnitude of the loss, which was far greater than analysts' consensus expectations of -$1.38 per share. 7 370. In the February 12, 2008 press release, Perry revealed that the -$6.43 8 9 per share quarterly loss was driven by substantial credit losses and a massive increase in the Company's loan loss reserves: 10 "We absorbed $863 million in total pre-tax credit provisions/costs 11 during .the quarter, and this led to our quarterly loss of $509 12 million.... Excluding non-investment grade and residual securities, 13 total Q4-07 charge-offs were $99 million, and the total related credit 14 reserve at December 31 was $1.1 billion, or 11.3 times the charge-off 15 amount in the fourth quarter of 2007. 16 371. Also on February 12, 2008, Perry hosted the Company's fourth 17 quarter 2007 earnings conference call with analysts. During the conference call, 18 Perry disclosed that credit reserves increased 71 % from the third quarter alone, 19 to $2.4 billion at 12131107, which was four times higher than the $619 billion in 20 reserves at 12131106. The huge increase in reserves taken that quarter, although 21 inadequate and untimely, as discussed above, included a $269 million increase to 22 ALL. Perry also admitted the Company's growing exposures from delinquencies 23 in its loan portfolios, including the failed Homebuilder Division. 24 372. In addition, IndyMac disclosed that non-performing assets in its HCL 25 Division rose to $480 million from $103 million in the prior quarter —reflecting an 26 astonishing 40% of all loans — due to, inter alia, a "reappraisal of over 66% of the 27 portfolio showing substantial declines in value in land and development projects, 28

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1 and re-assessment of borrower ability to pay principal and interest in a timely fashion given the precipitous drop in sales." In response, IndyMac had to increase 2 the HCL reserves by $199 million. These corrective adjustments reflected the fact 3 4 that the HCL loans were not properly underwritten and were based on fraudulent appraisals. And, in reality, the principles underlying that adjustment to carrying 5 6 value could have been applied to the entirety of IndyMac's balance sheet given the state of the real estate and mortgage-related industries at the time. 7 373. IndyMac also announced in February 2008 that it had transferred 8 9 $10.7 billion in loans held-for-sale to loans held-for-investment because they were 10 no longer marketable. In performing this transfer, IndyMac was required to take a 11 $600 million credit mark on these loans, including $474 million purported to represent a "reserve for future realized credit losses." This assertion — that the 12 Company was reserving for "future realized" losses — was itself counterintuitive. 13 These disclosures clearly reflected the abysmal quality of IndyMac's loans, the 14 materialization of years of deficient underwriting and appraisals, and, perhaps most 15 importantly, a similarly abysmal effort by IndyMac to adjust the carrying value of 16 the loans by a mere 5.6%, despite indications — including the need to transfer the 17 loans from its held-for-sale portfolio—that such "assets" were severely impaired. 18 374. In response to these disclosures, analysts further lowered their ratings 19 and earnings estimates for IndyMac, specifically citing the Company's credit 20 performance and increases in loan loss reserves, and questioning IndyMac's 21 evaluation of its credit risk. For example, in a February 13, 2007 report, RBC 22 lowered its rating on IndyMac from "Sector Perform" to "Underperform," and also 23 lowered its 2008 EPS estimates and 12-month price target for IndyMac. RBC 24 cited the "sizable exposure to credit risk in [IndyMac's] thrift portfolio," and noted 25 that "[t]raditional loss reserves totaled $398 million at 4Q07, approximately 1.97% 26 of total loans." RBC questioned whether IndyMac's loss reserves would 27 "adequately cover credit losses in the year ahead," and expressed concern that 28

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1 "[c]redit write-downs in the quarter drove the decline in capital ratios, and further 2 potential for credit erosion leaves us concerned that additional write-downs may leave IndyMac under-capitalized in the eyes of regulators." 3 375. BBC's analysis demonstrates that despite IndyMac's claims that it had 4 5 $474 million purportedly representing a "reserve for future realized credit losses," analysts understood that total reserves only "totaled $398 million" at the end of the 6 2007 fourth quarter. Thus, the position of analysts is consistent with, and supports, 7 the allegations that Defendants falsely represented the Company's ALL and related 8 "credit reserves." 9 376. Similarly, Fox-Pitt issued a report on February 12, 2008 entitled 10 11 "Kitchen Sink Quarter? IndyMac Posts Record Quarterly Loss," noting that "the 12 magnitude of the quarterly loss [-$6.43 per share] was well above our expectation" of just -$1.06 per share, and was also "well above... consensus of -$1.38." Fox- 13 Pitt explained that the $863 million taken in pre-tax credit costs demonstrated that, 14 as alleged throughout this Complaint, "the company has been under reserved for 15 some quite some time." Fox-Pitt also expressed concern about the true extent of 16 IndyMac's credit challenges, noting that "the $372MM in embedded credit costs 17 for the year appears too low, given the recent trajectory of delinquencies." 18 377. Recognizing analysts' and investors' concerns, Perry and Keys made 19 numerous false and misleading statements on February 12, 2008, including in the 20 Company's Form 10-Q, press release, and Form 8-K, and on the investor 21 conference call and the IMB Blog. Those misrepresentations included 22 reassurances that (a) IndyMac was a well-capitalized, `fundamentally sound 23 financial institution" with "an incredibly strong war chest of credit reserves," (b) 24 OTS did not have concerns with IndyMac's financial position, (c) independent 25 auditors had evaluated IndyMac's ALL methodology and found it effective, and 26 (d) IndyMac's deposit base was stable and well-managed. 27

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378. In fact, IndyMac represented in its conference call with investors on 1 February 12, 2008 that because of IndyMac's purportedly "incredibly strong 2 reserves at the end of '07," the Company expected to be "solidly profitable from 3 Q 1 `08 through all of 2008." Perry told investors that the Company would return 4 to profitability as early as the first quarter of 2008, and specifically stated that "we 5 believe we have a very realistic forecast , for 20081 given the reserves that we 6 built up at 12131107." According to Perry, because the Company had already "put 7 away 1.45 billion of credit costs in 2007," it was able to project just $372 million 8 of credit costs for 2008, and this anticipated decline in credit costs would be "a 9 key driver of our return to profitability." Perry acknowledged that such a drastic 10 reduction in credit costs might not "seem realistic, given the housing market," but 11 dismissed any such concerns, saying that "the point that I would make is we built 12 incredibly strong reserves at the end of '07, okay?" 13 up 379. These reassurances were materially false and misleading, and served 14 to conceal from investors the full extent of the Company's loss exposure arising 15 from IndyMac's undisclosed and improper lending practices, deficient internal 16 controls, and inappropriate accounting and reserving for credit losses. In fact, the 17 full extent of the loss exposure confronting the Company, and the true loan loss 18 provisions IndyMac was required — but failed — to take, were far more significant 19 than the Company disclosed in its February 12, 2008 statements. 20 380. Nevertheless, Defendants' efforts to diminish the impact of the 21 February 12 revelations, including by forecasting a swift return to profitability in 22 2008 thanks to "incredibly strong reserves," were successful, albeit materially false 23 and misleading. As Wachovia stated in a report issued on February 13, 2008, "the 24 stock reacted favorably to the Company's outlook for 2008." 25 C. The Class Period Ends 26 381. On May 12, 2008, the market gained a much fuller understanding of 27 the magnitude and severity of the loss exposure that had impacted, and was still 28

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1 facing, IndyMac. On that date, IndyMac issued a press release directly contradicting Perry's prior assurances to investors, including his statements, just 2 three months earlier, that the Company had established "incredibly strong 3 reserves" which would ensure IndyMac's return to profitability. Specifically, 4 IndyMac announced that rather than reporting a profit for the first quarter of 2008, 5 it would record a net loss of $184.2 million, or $2.27 per share, compared with net 6 earnings of $52.4 million, or $0.70 per share, in the first quarter of 2007. The 7 Company finally admitted that, "[w/ith respect to profitability, we do not expect 8 that IndyMac will be able to return to overall profitability until the current 9 decline in home prices decelerates. " Also contrary to prior representations, 10 11 IndyMac revealed on May 12 that it was suspending the dividend on its preferred shares. 12 382. As Perry explained during the May 12, 2008 earnings conference call 13 with analysts, IndyMac's reserves were nowhere near adequate, much less 14 "incredibly strong." Instead, IndyMac's financial condition was rapidly 15 deteriorating because of, inter alia, "rapidly increasing non-performing assets and 16 loan repurchase demands from secondary market investors, and as a result, the 17 need to establish significant credit reserves for these and forecasted future [non- 18 performing assets] and charge-offs." Perry admitted that "clearly with the benefit 19 of hindsight we made mistakes in our lending and mortgage banking activities." 20 383. In a shocking disclosure, Perry also revealed on May 12 that, in direct 21 contradiction to his prior assurances, IndyMac might not be able to continue as a 22 going concern because it faced a grave and incurable liquidity crisis. As Perry 23 admitted: "because we're one of the few mortgage bankers out there, and because 24 of the significant hits we've taken, our capital ratios have clearly been depleted. . 25 So as a result of that, our total risk-based capital ratio was relatively close to the 26 . well capitalized minimum. It was 10.26. The ratio there is 10. Clearly, there are 27

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scenarios in this environment where we could not be well capitalized and end up 1 being adequately capitalized for a short period of time." 2 384. Perry also admitted the persistent deficiencies in IndyMac's financial 3 reporting and forecasting, joking that "you can laugh all you want about this, but 4 when we forecast the third quarter losses, we missed by 12 times; when we 5 forecast fourth quarter credit losses, we missed by 8 times and in the first quarter 6 this year, when we forecast the first quarter, we missed by 2 times." While the 7 credit losses are a broader category than ALL, both are intimately related and 8 9 based on similar valuations, as well as impacted by both underwriting deficiencies 10 and an ineffective or inconsistent methodology for quantifying losses. Perry was essentially acknowledging—after repeatedly claiming that IndyMac's reserves were 11 "conservative" and its ALL methodology sound—that IndyMac's financial 12 reporting procedures and internal controls were fundamentally flawed. 13 385. The Company revealed additional details of its problems in its Form 14 -Q for the quarterly period ended March 31, 2008, issued May 12, 2008, filed 15 10 with the SEC and signed by Perry. In that report, the Company disclosed for the 16 first time that (a) had the April 2008 Ratings Downgrades by Moody's and 17 Standard & Poor's of mortgage-backed securities of which IndyMac retained a 18 19 total of 29 bonds with a carrying value of $160 million, been in effect on March 31, 2008, IndyMac's total risk-based capital ratio would have been 9.27%, and 20 IndyMac would no longer have been deemed a "well-capitalized" savings 21 association under federal regulations and could no longer accept brokered deposits 22 without a waiver; and (b) "even with a waiver, if the interest rate limitations on 23 brokered and solicited deposits were to be reduced ... we anticipate that we would 24 reduce our assets and, most likely, curtail our lending activities." Thus, IndyMac 25 disclosed that its reliance on brokered deposits was so great that even an interest 26 27 rate limitation would cause IndyMac to curtail its lending activities.

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386. This was IndyMac's first disclosure directly to investors of the extent 1 to which it relied on brokered deposits. Defendants' disclosures on May 12, 2008 2 contrasted sharply with, and revealed the falsity of, their previous assertions that 3 reliance on brokered deposits was not even "on our radar screen of being a 4 concern" to IndyMac. Because the May 12 disclosures revealed adverse 5 information about IndyMac's reliance on brokered deposits, which Defendants' 6 misrepresentations had previously concealed, loss causation exists as to the 7 brokered deposit allegations. 8 387. IndyMac further disclosed on May 12, 2008 that it had incurred $123 9 10 million in charge-offs during the prior quarter, and had to increase ALL again—this 11 time by $131.5 million. IndyMac also disclosed that its 30-day delinquency rate was 8.42%, and its HCL non-performing assets had reached $584 million. 12 388. The market reacted swiftly to these disclosures and the reactions of 13 analysts, discussed below, as IndyMac stock dropped to close at $2.32 per share on 14 May 13, 2008 on high volume, from a close of $3.43 per share on May 9, 2008 and 15 a close of $3.06 per share on May 12, 2008 — a two-day decline of $1.11 per share, 16 or 32%. The price drop on this date represents a dissipation of the artificial 17 inflation caused by Defendants' misrepresentations respecting quality of 18 19 underwriting and appraisals; reliance on brokered deposits; the inadequacy of loan

20 loss reserves; capital adequacy and liquidity position; and overall financial condition. 21 389. Perry's statements on May 12 stand in stark contrast to —and operated 22 to correct -- his earlier statements regarding the Company's liquidity, capital ratios, 23 and purportedly "well-capitalized" status. These disclosures also revealed the 24 falsity of Ernst's "unqualified" opinion on IndyMac's 2007 financial statements, 25 and Ernst's failure to include a going concern reservation in that opinion. 26 390. Immediately following the May 12 revelations, Fitch's downgraded 27 IndyMac's ratings, and analysts once again lowered their earnings estimates, citing 28

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IndyMac's uncertain financial condition, serious credit challenges, and _ 1 2 "questionable" capital adequacy. RBC lowered its price target and estimates for IndyMac stock in a report issued on May 13, 2008, citing "key credit concerns," 3 including "rising credit costs and increased [loan loss] provisioning[.]" Noting that 4 earnings in the first quarter 2008 were "negatively impacted by credit related 5 provisioning, losses, and negative mark-to-market securities," RBC stated that 6 increasing credit costs and loss reserves would "more than offset any improvement 7 in operating profitability in 2008." RBC reiterated its view that, given the 8 9 disclosures of, sharp increases in NPAs, the Company's reserves "will not 10 adequately cover credit losses in the year ahead[.]" 391. Similarly, as Reuters reported in a May 13, 2008 article entitled 11 12 "IndyMac slides after analyst says needs capital," analyst Paul Miller of Friedman, Billings Ramsey said the Company's May 12 disclosures showed the Bank needed 13 to raise significant capital. As Miller wrote, "[o]ur primary concern is that 14 IndyMac has minimal capital cushion, but losses will continue at least through 15 year-end .... IndyMac needs to raise additional capital — the question is not if, but 16 how much and at what cost." 17 392. In its May 13, 2008 report, RBC expressly stated that it was lowering 18 19 its estimates for IndyMac "[g/iven the company's very high exposure to credit risk (in the form of riskier geographic and loan characteristics)." RBC explained 20 that IndyMac's high concentration of risky loans, including pay-option ARMs, 21 interest-only loans, and "reduced borrower documentation standards of Alt-A," 22 together with "a sizable number of loans from the weak 2006-2007 vintages in 23 IMB's single-family residential loan book does not bode well for credit 24 performance ahead." As RBC explained, "[c]redit write-downs in the quarter 25 drove the decline in capital ratios and further potential for erosion leaves us 26 concerned that additional write-downs may leave IndyMac under-capitalized in the 27 eyes of regulators." 28

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393. Similarly, in a May 14, 2008 report, Wachovia reduced its earnings 1 estimates for IndyMac, citing, inter alia, the Company's failure to "aggressive [1y]" 2 increase reserves in view of rising NPAs. As Wachovia stated: "[W]e believe 3 4 IMB's credit has performed worse than peers, as NPAs are at the high-end of the range while they have not been as aggressive building reserves for the 5 investment portfolio relative to competitors. " 6 394. The reactions of analysts to the May 12, 2008 disclosures further 7 establish the corrective nature of these revelations. As noted above, analysts 8 9 responded to these disclosures by voicing serious concern over IndyMac's 10 uncertain financial condition and "questionable" capital adequacy. For example, 11 analyst RBC clearly understood IndyMac's disclosures on May 12 to indicate that the Company was now facing "severe" and "draconian" actions by regulators. 12 Based on the May 12 disclosures, RBC concluded that the "risk inherent in holding 13 onto IMB shares in the current environment exceeds the benefits," reiterating that 14 "we would not rule out FDIC receivership if credit problems continue to worsen 15 materially from here." This statement shows the direct correlation. between poor 16 credit quality and depleted liquidity, the combination of which ultimately led 17 IndyMac into receivership. 18 395. The May 12, 2008 disclosures, and analysts' reactions to those 19 revelations, demonstrate the falsity of Perry's statements regarding IndyMac's 20 dealings with the OTS, including his representations, on February 12, 2008, that 21 IndyMac was in a "fundamentally sound financial position" and could maintain its 22 "well-capitalized" capital ratios. These disclosures directly contradicted Perry's 23 February 12, 2008 statements, and revealed adverse information about IndyMac's 24 dire financial condition and urgent need for additional regulatory and other capital, 25 which Defendants' misrepresentations had previously concealed. Accordingly, 26 loss causation exists as to Defendants' false statements regarding IndyMac's 27 dealings with the OTS. 28

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396. Furthermore, Ernst's material misstatements and omissions in its 1 publicly issued 2007 audit opinion — specifically, its failure to include a going 2 concern reservation in that opinion -- demonstrate both the artificial inflation 3 Ernst's conduct caused in the price of IndyMac stock and that Ernst's conduct 4 proximately caused foreseeable losses to Plaintiff and members of the Class. 5 While IndyMac was still operating at the end of the Class Period, May 12, 2008, its 6 situation was so dire that it was seized and closed by the OTS less than two 7 8 months later, on July 11, 2008. D. IndyMac's Losses Were Not the Result of General Market 9 Conditions and Were Instead the Result of the Concealed 10 Practices 11 397. Following the collapse of IndyMac, facts have emerged that confirm 12 that the losses announced in these foregoing disclosures were not the result of 13 general market forces, but rather mismanagement within IndyMac that Defendants 14 affirmatively concealed from investors. For example: 15 • On October 22, 2007, Perry privately admitted that "roughly 2/3rds of 16 our credit losses were poor management judgment not the market." 17 Trustee Complaint T 231. 18 • On October 31, 2007, Perry told the IndyMac Board that "we made 19 some serious mistakes with respect to credit management." Id. ¶ 233. 20 • In reacting to analyst downgrades after the Company reported missing 21 its estimates and made other negative disclosures in the November 6, 22 2007 earnings forecast, Perry privately wrote that it was undeniable 23 that "we made too many mistakes and we [senior managers] all had a 24 hand in where we are today." Id. ¶ 234. 25 • On January 8, 2008, in an e-mail to management regarding the Bank's 26 poor management of credit risk, Perry stated, "[T]he losses are 100% 27 operating management's fault (from me on down)." Id. ¶ 235. 28

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398. These admissions demonstrate that Defendants cannot attempt to 1 negate loss causation by pointing to general market conditions. IndyMac's losses 2 were the result of the decisions that IndyMac made with respect to underwriting, 3 risk management, internal controls, reliance on brokered deposits, and reliance on 4 historical models to forecast losses. These were the same decisions that IndyMac 5 affirmatively concealed from investors during the Class Period. 6 399. Because the May 12, 2008 disclosures with respect to IndyMac's 7 critical capital needs and liquidity revealed adverse information about IndyMac's 8 9 financial health that Defendants' prior misrepresentations had concealed, causing 10 the stock to plummet 32% on May 13, 2008, it is clear that the stock decline and 11 the misstatements are causally related. Accordingly, loss causation exists as to the false statements regarding IndyMac's liquidity and Ernst's failure to provide a 12 going concern reservation. 13 IX. THE COLLAPSE OF INDYMAC AND OTHER POST- 14 CLASS PERIOD DEVELOPMENTS 15 400. The market continued to learn more precisely how dire IndyMac's 16 financial condition was shortly after the close of the Class Period. On July 11, 17 2008, IndyMac Bank, the majority owned subsidiary and principal asset of 18 19 IndyMac, was seized and closed by the OTS. The FDIC was appointed receiver of the Bank. On the same day, the OTS chartered a new institution, IndyMac Federal 20 Bank, appointed the FDIC as conservator and transferred substantially all of the 21 assets and certain liabilities of the Bank to IndyMac Federal Bank. Perry is no 22 longer affiliated with the Bank, nor is he affiliated with the IndyMac Federal Bank. 23 Since the Bank is in conservatorship, and its holding company, IndyMac, has filed 24 for Bankruptcy, they are not named as a defendant in this Action. 25 401. On July 16, 2008, the Associated Press reported that "[t]he FBI is 26 investigating failed bank IndyMac Bancorp Inc. for possible fraud." 27

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402. On July 31, 2008, IndyMac filed for Chapter 7 bankruptcy protection 1 in Los Angeles. Chapter 7 is liquidation of the Company's assets to pay off its 2 creditors. The bankruptcy court filing signed by Defendant Perry estimated that 3 IndyMac had between $50 million and $100 million in assets, but $100 million to 4 5 $500 million in liabilities. IndyMac Bank, operated since July 11, 2008 by the 6 federal government, is no longer connected to the holding company IndyMac Bancorp at the time of the bankruptcy filing. 7 403. As set forth above, on February 26, 2009, the OIG issued the Treasury 8 9 Report, following its intensive review of documents and interviews, to determine 10 the causes of IndyMac's failure, which cost the FDIC insurance fund 11 approximately $12.75 billion. The Treasury Report concluded that the causes of IndyMac's failure were IndyMac's (1) high risk business strategy and aggressive 12 growth; (2) lack of core deposits; (3) inadequate loss reserves; and (4) unsound 13 loan underwriting practices. The Report emphasizes that IndyMac was exposed to 14 heightened risk from its burgeoning portfolio of non-traditional loans, especially 15 16 option ARMs. ARMs comprised nearly 3 of every 4 loans that IndyMac made during the years 2004 through 2006. In 2006, 75 percent of borrowers who took 17 the option ARM were only making the minimum payment. 18 X. APPLICABILITY OF PRESUMPTION OF RELIANCE: 19 FRAUD-ON-THE-MARKET DOCTRINE 20 404. At all relevant times, the market for IndyMac stock was an efficient 21 market for the following reasons, among others: 22 (a) IndyMac stock met the requirements for listing, and was listed 23 and actively traded on the NYSE, a highly efficient and automated market; 24 (b) As a regulated issuer, IndyMac filed periodic public reports 25 with the SEC and the NYSE; 26 (c) IndyMac regularly communicated with public investors via 27 established market communication mechanisms, including through regular 28

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1 disseminations of press releases on the national circuits of major newswire services, through analyst and investor conference calls and through other wide- 2 ranging public disclosures, such as communications with the financial press and 3 other similar reporting services; and 4 (d) IndyMac was followed by numerous securities analysts, 5 including Wachovia, Lehman Brothers, The Friedman, Billings, Ramsey Group, 6 RBC Capital Markets, Fox-Pitt Kelton Cochran Caronia Waller, and Roth Capital 7 Partners, who issued regular reports and recommendations during the Class Period. 8 9 Each of these reports was publicly available and entered the public marketplace. 405. As a result of the foregoing, the market for IndyMac stock promptly 10 11 digested current information regarding IndyMac from all publicly available sources and reflected such information in IndyMac stock prices. Under these 12 circumstances, all purchasers of IndyMac stock during the Class Period suffered 13 similar injury through their purchase of IndyMac stock at artificially inflated 14 prices, and a presumption of reliance applies. 15 XI. NO STATUTORY SAFE HARBOR 16 406. The statutory safe harbor provided for forward-looking statements 17 under certain circumstances does not apply to any of the false statements pleaded 18 in this Complaint. Many of the specific statements pleaded herein were not 19 identified as "forward-looking statements" when made. False statements contained 20 in the 2006 and 2007 audited financial statements of IndyMac, which all 21 Defendants represented had been prepared in conformity with GAAP are not 22 eligible for "safe harbor" status by statute, see 15 U.S.C. § 78U-5(B)(2)(A). To the 23 extent there were any forward-looking statements, there were no meaningful 24 cautionary statements identifying important factors that could cause actual results 25 to differ materially from those in the purportedly forward-looking statements. 26 Alternatively, to the extent that the statutory safe harbor does apply to any 27 forward-looking statements pleaded herein, Defendants are liable for those false 28

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forward-looking statements because at the time each of those forward-looking 1 statements was made, the particular speaker knew that the particular forward- 2 3 looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of IndyMac who knew that those 4 statements were false when made. 5 FIRST CLAIM FOR RELIEF 6 (Against Defendants Perry and Keys for Violations of Section 10(b) of the 7 Exchange Act and Rule 10b-5 Promulgated Thereunder) 8 407. Plaintiff repeats and realleges each and every allegation contained 9 10 above as if fully set forth herein. 408. During the Class Period, Defendants Perry and Keys carried out a 11 plan, scheme and course of conduct which was intended to and, throughout the 12 13 Class Period, did: (i) deceive the investing public, including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and other members of the 14 Class to purchase IndyMac stock at artificially inflated prices. In furtherance of 15 this unlawful scheme, plan and course of conduct, Defendants Perry and Keys, and 16 each of them, took the actions set forth herein. 17 409. Defendants Perry and Keys (a) employed devices, schemes, and 18 artifices to defraud; (b) made untrue statements of material fact and/or omitted to 19 state material facts necessary to make the statements not misleading; and (c) 20 engaged in acts, practices, and a course of business which operated as a fraud and 21 deceit upon the purchasers of IndyMac's stock in an effort to maintain artificially 22 high market prices for those securities in violation of Section 10(b) of the 23 Exchange Act and Rule lOb-5. Defendants Perry and Keys are sued as primary 24 participants in the wrongful and illegal conduct charged herein and Defendants 25 Perry and Keys are sued as controlling persons, as alleged below. 26 410. Defendants Perry and Keys, individually and in concert, directly and 27 indirectly, by the use, means or instrumentalities of interstate commerce and/or of 28

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1 the mails, engaged and participated in a continuous course of conduct to conceal 2 adverse material information about the business, operations and future prospects of IndyMac as specified herein. 3 411. Defendants Perry and Keys employed devices, schemes and artifices 4 to defraud, while in possession of material adverse non-public information and 5 engaged in acts, practices, and a course of conduct as alleged herein in an effort to 6 assure investors of IndyMac's sound financial position, prudent management of 7 risks, and the soundness of its mortgage originations and securitizations, despite 8 9 the challenging market conditions, which included the making of, or the 10 participation in the making of, untrue statements of material facts and omitting to 11 state material facts necessary in order to make the statements made about IndyMac 12 and its business operations and future prospects in the light of the circumstances under which they were made, not misleading, as set forth more particularly herein, 13 and engaged in transactions, practices and a course of business which operated as a 14 fraud and deceit upon the purchasers of IndyMac stock during the Class Period. 15 412. Each of the Defendants Perry and Keys' primary liability, and 16 controlling person liability, arises from the following facts: (i) Defendants Perry 17 and Keys were each high-level executives and/or a director of IndyMac during the 18 19 Class Period and members of the IndyMac's management team or had control thereof; (ii) Defendants Perry and Keys, by virtue of their responsibilities and 20 activities as a senior officer and/or director of the Company, was privy to and 21 participated in the creation, development and reporting of IndyMac's plans, 22 statements and/or reports; (iii) Defendants Perry and Keys were advised of and had 23 access to other members of IndyMac's management team, internal reports, and 24 other data and information about the IndyMac's operations at all relevant times; 25 and (iv) Defendants Perry and Keys were aware of the Company's dissemination 26 of information to the investing public, which they knew or were deliberately 27 reckless in disregarding was materially false and misleading. 28

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413. Defendants Perry and Keys made the misrepresentations and 1 omissions of material facts set forth herein, either intentionally or with deliberately 2 reckless disregard for the truth in that they failed to ascertain and to disclose such 3 facts, even though such facts were available to them. Such material 4 misrepresentations and/or omissions were done intentionally or with deliberate 5 recklessness and for the purpose and effect of concealing IndyMac's financial 6 condition and future business prospects from the investing public and supporting 7 the artificially inflated price of its securities. As demonstrated by Defendants 8 Perry and Keys' misstatements of IndyMac's business and operations throughout 9 10 the Class Period, Defendants Perry and Keys, if they did not make the misrepresentations and omissions alleged intentionally, were deliberately reckless 11 in failing to obtain such knowledge by deliberately refraining from taking those 12 steps necessary to discover whether those statements were false or misleading. 13 414. As a result of the dissemination of the materially false and misleading 14 information and failure to disclose material facts, as set forth above, the market 15 price of IndyMac stock was artificially inflated during the Class Period. In 16 ignorance of the fact that market prices of IndyMac stock were artificially inflated, 17 and relying directly or indirectly on the false and misleading statements made by 18 Defendants Perry and Keys, or upon the integrity of the markets in which 19 IndyMac's stock trades, and/or on the absence of material adverse information that 20 was either intentionally or deliberately recklessly disregarded by Defendants Perry 21 and Keys but not disclosed in public statements by Defendants Perry and Keys 22 during the Class Period, Plaintiff and the other members of the Class acquired 23 IndyMac stock during the Class Period at artificially high prices and were damaged 24 thereby. 25 415. At the time of said misrepresentations and omissions, Plaintiff and 26 other members of the Class were ignorant of their falsity, and believed them to be 27 true. Had Plaintiff and the other members of the Class and the marketplace known 28

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1 the truth regarding, inter alia, IndyMac's financial condition, fraudulent loan origination and securitization practices and the riskiness of its loans, which facts 2 were not disclosed by Defendants Perry and Keys, Plaintiff and other members of 3 the Class would not have purchased or otherwise acquired their IndyMac stock, or, 4 if they had acquired such stock during the Class Period, they would not have done 5 6 so at the artificially inflated prices which they paid. 416. By virtue of the foregoing, Defendants Perry and Keys have violated 7 Section 10(b) of the Exchange Act, and Rule l Ob-5 promulgated thereunder. 8 417. As a direct and proximate result of Defendants Perry's and Keys' 9 10 wrongful conduct, Plaintiff and the other members of the Class suffered damages 11 in connection with their respective purchases of IndyMac's stock during the Class Period. 12 SECOND CLAIM FOR RELIEF 13 (Against Defendants Perry and Keys For Liability 14 Under Section 20(a) of the Exchange Act) 15 418. Plaintiff repeats and realleges each and every allegation contained 16 above as if fully set forth herein. 17 419. Defendants Perry and Keys acted as controlling persons of IndyMac 18 and IndyMac Bank within the meaning of Section 20(a) of the Exchange Act as 19 alleged herein. By virtue of their high-level positions with the Company and 20 participation in and/or awareness of the Company's operations, Defendants Perry 21 and Keys had the power to influence and control and did influence and control, 22 directly or indirectly, the decision-making of the Company, including the content 23 and dissemination of the various statements which Plaintiff contends are false and 24 misleading. Defendants Perry and Keys were provided with, or had unlimited 25 access to, information about IndyMac's and IndyMac Bank's financial condition, 26 its loan origination and securitization practices, and the low credit quality of its 27 loans and copies of the Company's reports, press releases, public filings and other 28

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1 statements alleged by Plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements 2 or cause the statements to be corrected. 3 420. In particular, Defendants Perry and Keys had direct and supervisory 4 involvement in the day-to-day operations of the Company and, therefore, had the 5 power to control or influence the particular transactions giving rise to the securities 6 violations as alleged herein, and exercised the same. 7 421. As set forth above, Defendants Perry and Keys, and non-defendants 8 IndyMac and IndyMac Bank, each violated Section 10(b) and Rule lOb-5 by their 9 10 acts and omissions as alleged in this Complaint. By virtue of their positions as 11 controlling persons, of IndyMac and IndyMac Bank, Defendants Perry and Keys are liable pursuant to Section 20(a) of the Exchange Act. As a direct and 12 proximate result of Defendants Perry's and Keys' wrongful conduct, Plaintiff and 13 other members of the Class suffered damages in connection with their purchases of 14 the IndyMac's stock during the Class Period. 15 THIRD CLAIM FOR RELIEF 16 (Against Defendant Ernst & Young LLP for Violations of Section 10(b) 17 of the Exchange Act and Rule 10b-5 Promulgated Thereunder) 18 422. Plaintiff repeats and realleges each and every allegation contained 19 above as if fully set forth herein. 20 423. During the Class Period, Defendant Ernst carried out a plan, scheme 21 and course of conduct which was intended to, and, throughout the Class Period, 22 did: (i) deceive the investing public, including Plaintiff and other Class members, 23 as alleged herein; and (ii) cause Lead Plaintiff and other members of the Class to 24 purchase IndyMac stock at artificially inflated prices. 25 424. Defendant Ernst (a) employed devices, schemes, and artifices to 26 defraud; (b) made untrue statements of material fact and/or omitted to state 27 material facts necessary to make the statements not misleading; and (c) engaged in 28

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1 acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of IndyMac's stock. 2 425. Defendant Ernst, directly and indirectly, by the use, means or 3 instrumentalities of interstate commerce and/or of the mails, engaged and 4 participated in a continuous course of conduct to conceal adverse material 5 information about the business, operations and future prospects of IndyMac as 6 specified herein. Specifically, Defendant Ernst deceived investors by falsely 7 certifying the IndyMac's 2006 and 2007 Forms 10-K (filed March 1, 2007 and 8 February 29, 2008, respectively). 9 426. Defendant Ernst had actual knowledge of the misrepresentations and 10 11 omissions of material facts set forth herein, or acted with deliberately reckless disregard for the truth in that it failed to ascertain and to disclose such facts, even 12 though such facts were available to them. Such material misrepresentations and/or 13 omissions were done knowingly or deliberately recklessly and for the purpose and 14 effect of concealing IndyMac's financial condition and future business prospects 15 from the investing public and supporting the artificially inflated price of its 16 securities. 17 427. As a result of the dissemination of the materially false and misleading 18 information and failure to disclose material facts, as set forth above, the market 19 price of IndyMac stock was artificially inflated during the Class Period. In 20 ignorance of the fact that market prices of IndyMac stock were artificially inflated, 21 and relying directly or indirectly on the false and misleading statements made by 22 Defendant Ernst, or upon the integrity of the markets in which the IndyMac's stock 23 trades, and/or on the absence of material adverse information that was known to or 24 with deliberate recklessness disregarded by Defendant Ernst but not disclosed in 25 public statements during the Class Period, Plaintiff and the other members of the 26 Class acquired IndyMac stock during the Class Period at artificially high prices 27 and were damaged thereby. 28

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428. At the time of said misrepresentations and omissions, Plaintiff and 1 other members of the Class were ignorant of their falsity, and believed them to be 2 true. Had Lead Plaintiff and the other members of the Class and the marketplace 3 known the truth regarding IndyMac's financial condition, Plaintiff and other 4 members of the Class would not have purchased or otherwise acquired their 5 IndyMac stock, or, if they had acquired such stock during the Class Period, they 6 would not have done so at the artificially inflated prices which they paid. 7 429. By virtue of the foregoing, defendant Ernst violated Section 10(b) of 8 the Exchange Act, and Rule l Ob-5 promulgated thereunder. 9 430. As a direct and proximate result of defendant Ernst's wrongful 10 conduct, Lead Plaintiff and the other members of the Class suffered damages in 11 connection with their respective purchases of IndyMac's stock during the Class 12 Period. 13 XII. PRAYER 14 WHEREFORE, Lead Plaintiff prays for relief and judgment, as follows: 15 A. Determining that this action is a proper class action and certifying 16 Lead Plaintiff as class representative under Rule 23 of the Federal Rules of Civil 17 Procedure; 18 B. Awarding compensatory damages in favor of Lead Plaintiff and the 19 other Class members against all Defendants, jointly and severally, for all damages 20 sustained as a result of Defendants' wrongdoing, in an amount to be proven at trial, 21 including prejudgment interest thereon; 22 C. Awarding Lead Plaintiff and the Class their reasonable costs and 23 expenses incurred in this action, including counsel fees and expert fees; and 24

25 D. Such other and further relief as the Court may deem just and proper.

26 Dated: May 27, 2011 MARC M. SELTZER 27 RYAN C. KIRKPATRICK SUSMAN GODFREY L.L.P. 28

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1 KENNETH S. MARKS (Admitted Pro Hac Vice) 2 kmarksAsusmangodfrey.com SUSMAN GODFREY L.L.P. 3 1000 Louisiana Street, Suite 5100 Houston, TX 77002-5096 4 Telephone: (713) 651-9366 Fax: (713) 654-6666 5 SHERRIE R. SAVETT 6 ARTHUR STOCK PHYLLIS M. PARKER 7 BERGER & MONTAGUE, P.C. 8 9 By d`'1_ Marc M. Seltzer 10 Attorneys for Lead Plaintiff 11 and the Class 12

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1 JURY TRIAL DEMANDED 2 Plaintiff hereby demands a trial by jury. 3

4 Dated: May 27, 2011 MARC M. SELTZER 5 RYAN C. KIRKPATRICK SUSMAN GODFREY L.L.P. ° KENNETH S. MARKS 7 (Admitted Pro Hac Vice) k arks susmangodfrey com SUSMAN GODFREY L.L.P. 8 1000 Louisiana Street, Suite 5100 9 Houston, TX 77002-5096 Telephone: (713) 651-9366 Fax: (713) 654-6666 10 SHERRIE R. SAVETT 11 ARTHUR STOCK PHYLLIS M. PARKER 12 BERGER & MONTAGUE, P.C. 13

14 By Marc M. Seltzer 15 16 Attorneys for Lead Plaintiff and the Class 17

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1 PROOF OF SERVICE 2 I, the undersigned, declare: 3 I am employed in the County of Los Angeles, State of California. I am over the age of 18 and not a party to the within action- my business address is 1901 4 Avenue of the Stars, Suite 950, Los Angeles, California 90067-6029. 5 On May 27, 2011, I served the foregoing document(s) described as follows: 6 FIFTH AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATION OF FEDERAL SECURITIES LAWS 7 on the interested parties in this action by placing true copies thereof enclosed in 8 sealed envelopes addressed as stated on the attached service list, as follows: 9 BY MAIL: I am "readily familiar" with the firm's practice of collection and processing 10 correspondence for mailing. Under that practice, it would be deposited with the U.S. Postal Service on that same day with postage thereon fully prepaid at Los 11 Angeles, California in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if postal cancellation date or 12 postage meter date is more than one day after date of deposit for mailing in affidavit. 13 BY PERSONAL SERVICE: 14 I caused to be delivered such envelope by hand to the offices of the addressee. 15 BY FEDERAL EXPRESS OR OVERNIGHT COURIER 16 BY FAX -- -17 - - I-served by facsimile as indicated on the attached service list. - - - 18 XX BY ELECTRONIC MAIL I caused said documents to be prepared in portable document format (PDF) 19 for e-mailing and served by electronic mail as indicated on the attached service list. 20 Executed on May 27, 2011, at Los Angeles, California. 21 (State) I declare under penalty of perjury under the laws of the State of =ali^ornia that the above is true and correct. 22 XX (Federal) I declare that I am employed in the office of a member of the bar 23 of this Court at whose direction the service was made.

24 77// 25 Sandra L. Thomas v^1D^'I^2^^ (Type or Print Name) (Signat re) 26

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1 SERVICE LIST 2 PLAINTIFF'S COUNSEL DEFENDANTS' COUNSEL 3 Marc M. Seltzer Tammy Albarran mseltzer(asusmangodfrey.com tlbarran cov.com 4 Ryan C. Kirkpatrick David B. Bayless rkirkppatrick susmangodfrey.com [email protected] 5 SUSMAN DFREY L.L.P. Kellyy Patrice Finley 1901 Avenue of the Stars, Suite 950 kfinlecov.com 6 Los Angeles, CA 90067-6029 COVMTON & BURLING LLP Telephone: (310) 789-3100 One Front Street 7 Fax: 310 789-3150 San Francisco, CA 94111-5356 Tel: (415) 591-6000 8 Kenneth S. Marks Fax: (41 5) 591-6091 Admitted Pro Hac Vice 9 kmarks(a)susmangodfrey.com- Attorneys for Defendant SUSMA`^1 GODFREY L.L.P. Michael W Perry 10 1000 Louisiana Street, Suite 5100 Houston, TX 77002-5096 11 Tel: (713) 651-9366 Miles N. Ruthbergg Fax: (713) 654-6666 Miles.Ruthberg,@lw.com 12 Robert W. Perrin Sherrie R. Savett [email protected] 13 ssavettPbm.net Julie R. F. Gerchik Arthur Stock Julie.gge^rchik lw.com 14 astock bm.net LATHAM & ATKINS LLP Phyllis-M. Parker 355 South Grand Avenue 15 pppparkerWbm.net Los Angeles, CA 90071-1560 BERGE & MONTAGUE, P.C. Tel: (213) 485-1234 16 1622 Locust Street Fax: (213) 891-8763 Philadelphia, PA 19103 -17-- Tel (215) 875-3000 Attorne s or Defendant - Fax: (215) 875-4604 Ernst & Young LLP 18 Attorneys for Lead Plaintiff 19 And the Class Gregory S. Bruch [email protected] 20 Julie A. §mith ith^awillkie.com 21 Pessmsica L. Matelis ^mT, atelis willkie.com 22 ILLK& FARR & GALLAGHER LLP 23 1875 K Street, NW Washington, D.C. 20006-1238 24 Tel: (202) 303-1000 Fax: (202) 303-2000 25 Attorneys for Defendant 26 A. Scott Keys

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