WASHINGTON - The US Securities and Exchange Commission was dealt a setback in its cases tied to the financial collapse when a federal judge dismissed large parts of its case against former executives at failed mortgage lender IndyMac Bancorp.
In a verbal order entered on Monday and released as a transcript on Tuesday, US District Judge Manuel Real gave an extensive explanation for siding with the defendants and rejecting many of the SEC's allegations in the case.
The lawsuit is one of dozens of cases the SEC has brought against executives at notable firms for conduct that allegedly fueled the financial crisis.
The underlying theme in the IndyMac case, as well as other cases, is that executives failed to adequately disclose risks as problems emerged in 2007 and 2008.
The SEC has sued former executives at mortgage finance agencies Fannie Mae and Freddie Mac on similar grounds, alleging that six former top officials approved misleading statements claiming the companies had minimal holdings of higher-risk mortgage loans, including subprime loans.
In the IndyMac case, the SEC in February 2011 sued the bank's former chief executive Michael Perry and former finance chief Scott Keys.
The SEC is accusing them of securities fraud and said they withheld negative forecasts and misled investors in 2008 about the bank's capital raising efforts as the bank's financial condition worsened.
But the disclosures were neither false nor misleading, Real said.
The SEC had alleged, for example, that the bank failed to disclose an internal forecast that showed the bank's capital ratio could fall below a 10 per cent threshold required by regulators.
But firms were not required to disclose all internal projections, Real said.
The SEC also accused the executives of misleading investors about a stock purchase program and hiding the fact that it was being used to raise capital.
Real said IndyMac had disclosed the program in other parts of the 10-K filing at issue.
The SEC also alleged IndyMac made misleading statements about its liquidity, but the statements were true because they clearly only referred to 2007, Real said.
"Predictive statement are just what the name implies: Predictions. As such, any optimistic projections contained in such statements are necessarily contingent," Real said.
An SEC spokesman said the agency is reviewing the decision.