Institutional Investor Roundup: Ex-IndyMac Executives Class Action Securities Case for $6.5M, New York Fed Sells $828M of Mortgage Debt Securities from AIG Bailout, and Survey Says That 25% of Wall Street Employees Believe Cheating is Necessary to Succeed

The former executives of IndyMac Banccorp have consented to settle class-action securities lawsuit related to bank holding company’s collapse when the housing bubble burst. Per the settlement terms, the financial firm’s insurer will pay investors $6.5 million in cash.

IndyMac shareholders had gone after ex-CEO Michael Perry and ex-finance officer Scott Keys in 2008, contending that they had misled investors about the mortgage lender’s poor financial condition. A month later, federal bank regulators closed down IndyMac Bank. Although the two of them are settling, they were not required to admit to any wrongdoing.

“Again, no jail time for anyone,” commented Shepherd Smith Edwards and Kantas, LTD, LLP Founder and Stockbroker Fraud Lawyer William Shepherd.

Other litigation against ex-IndyMac executives is pending. The Federal Deposit Insurance Corp., which is overseeing the receivership of the failed mortgage lender, is also suing Perry for $600 million. FDIC says that IndyMac’s failure is expected to cost its deposit insurance fund $13 billion.

In other securities news, last week the Federal Reserve Bank of New York sold $828 million of mortgage debt securities as it proceeds to wind down a portfolio from the American International Group bailout in 2008. Acceptance of the bids made brings the total portfolio sales of Maiden Lane III to about $27.5 billion, while lowering the value of the rest of the portfolio to approximately $18.7 billion. Credit Suisse Group AG (CS) was one of the buyers.

“When the original sale was attempted the process was shut down because the bids, expected to be much higher, were for less than 10% of the face value of the securities,” said Mortgage-Backed Securities Lawyer Shepherd. “Believe me, there will be billions of profits made by those who acquire these assets no matter how toxic the waste being purchased. After the savings and loan debacle in the late 1980’s, billions were made by those who purchased the ‘bad paper’ from the Resolution Trust, which was the government bailout fund. My guess is that tens or hundreds of billions will be made on this batch of bad paper. A good collection agency could probably help the taxpayers here and put most of the difference in our government’s pocket. Oh, and who went to jail over the AIG blow up? Answer: Nobody”

Unfortunately, it looks like misconduct on Wall Street isn’t going to go away. According to a survey of 500 financial service professionals in the US and Great Britain, 24% of respondents believe that to be successful, you have to, on occasion, take part in activities that are illegal or unethical. For many, the incentive to cheat is money. 30% of those surveyed said that the impetus to engage in such activities was linked to the way their bonus and compensation plans were structured, which is where the real money comes in.

Although this leaves 76% of respondents saying that breaking the law or acting unethically is never necessary to move on up, Securities Attorney Shepherd said, “Only one in four? Is that supposed to be a good record? Over a million people are licensed to sell securities or act as financial advisors in the U.S. So, a quarter of a million financial professionals admit they feel obliged to break the rules from time to time? Most of these people work with dozens if not hundreds of clients. So, is there a question as to whether Wall Street needs tighter restrictions?”

Former IndyMac Chief Settles Suit, The Wall Street Journal, July 8, 2012

NY Fed Maiden Lane III Sales Top $27 Billion With Latest Auction
, Fox Business, July 12, 2012

Many on Wall Street think cheating breeds success, MSNBC, July 10, 2012


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