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<DIV class=body><I>From the Los Angeles Times</I></DIV>
<H1>Regulator demoted; inquiry finds he let IndyMac backdate assets</H1>
<DIV class=storysubhead>The action by Darrel Dochow of the Office of Thrift
Supervision allowed the Pasadena bank to put off disclosing the extent of its
troubles, the Treasury inspector general says.</DIV>By William Heisel and Ralph
Vartabedian<BR><BR>December 23, 2008<BR><BR>When the government seized IndyMac
Bank in July, many of its investors and customers wondered why regulators hadn't
intervened sooner to prevent one of the costliest bank failures in U.S.
history.<BR><BR>An answer came Monday when the Treasury Department's inspector
general said a government official had allowed the Pasadena mortgage lender to
alter its financial statements in a way that delayed disclosure of the extent of
its problems.<BR><BR>As a result of the inspector general's inquiry, which is
continuing, Darrel W. Dochow was relieved of his duties as Western regional
director of the federal Office of Thrift Supervision pending an inquiry, the
agency said in a letter released Monday.<BR><BR>In a May 9 phone call, Dochow
agreed to allow IndyMac to record a $50-million capital infusion received that
day from IndyMac's parent company as if it had been received before March 31,
the inspector general said.<BR><BR>The move allowed the savings and loan to
report that it was "well capitalized" at the end of the first quarter, meaning
it was financially strong enough to stay in business.<BR><BR>Two months later,
IndyMac failed at an estimated cost to the federal deposit insurance fund of
$8.9 billion. <BR><BR>If the backdating had not been allowed, the Federal
Deposit Insurance Corp. might have been able to facilitate a sale of the company
at no cost to the insurance fund, as it did in September with Washington Mutual
Bank. <BR><BR>Regulators at the Office of Thrift Supervision, which oversees
savings and loans, "did not want to lose control of IndyMac and hand it over to
the FDIC, so they let IndyMac play this game," said William Black, a former
Office of Thrift Supervision attorney who teaches law at the University of
Missouri in Kansas City. <BR><BR><FONT color=#ff0000>The Times had reported in
October that Dochow had returned to a senior post after having been demoted
because of his role in the 1989 collapse of Lincoln Savings & Loan, at the
time the biggest bank failure ever. Two years earlier, Dochow, then the head of
supervision and regulation at the Federal Home Loan Bank Board, had rebuffed
recommendations from regulators in California and other states calling for
Lincoln to be put out of business. <BR><BR>"This guy is the most infamous
banking regulator in the country, and somehow he ended up back in charge," Black
said.</FONT><BR><BR>In a letter to the Treasury inspector general dated Sunday,
John Reich, director of the Office of Thrift Supervision, called the backdating
"a relatively small factor in the events leading to the failure of IndyMac." A
spokesman for the agency said that Dochow would not be available for
comment.<BR><BR>Representatives of IndyMac, which is being run by the FDIC as it
tries to sell the bank's assets, declined to comment.<BR><BR>For the backdating
to be permissible, there would have to be documentation from before the end of
the first quarter showing that IndyMac's parent, IndyMac Bancorp, had intended
to give the banking unit the money, the inspector general, Eric Thorson, wrote
in a letter Monday to the Senate Finance Committee.<BR><BR>"However, in our work
thus far, we have neither found nor been shown any indication that this intent
existed," he wrote.<BR><BR>Banking experts said IndyMac, at a minimum, should
have disclosed the date change to investors and to the FDIC. Without the date
change, the thrift would have been forced to ask the FDIC for a waiver allowing
it to take brokered bank deposits. That would have been a red flag to the agency
and investors that the thrift was having problems, experts said.<BR><BR>IndyMac
subsequently lured depositors with some of the highest interest rates on the
market on certificates of deposit, increasing the eventual cost to the deposit
insurance fund.<BR><BR>"They had lost all of their own money, so then they were
able to gamble with other people's money, knowing that the FDIC was just going
to come in and cover the losses," said James Barth, a former chief economist of
the Office of Thrift Supervision and now a finance professor at Auburn
University in Alabama. "You want to protect investors and allow them to sell
their shares if they want to get out, and you want to protect the FDIC so it can
minimize its risk exposure by taking action sooner."<BR><BR>In his letter,
Thorson said his office had discovered that the Office of Thrift Supervision had
allowed other banks to backdate capital infusions. A spokesman for Thorson said
the inquiry on the backdating would not be completed for at least two months.
<BR><BR>Dochow was demoted to a position handling special projects pending the
conclusion of the inquiry, Reich said in his letter.<BR><BR>Thorson's and
Reich's letters were released by Sen. Charles E. Grassley of Iowa, the Finance
Committee's ranking Republican. <BR></FONT></DIV></BODY></HTML>