CA won't probe Schumer over IndyMac

August 24, 2008 8:27:05 AM PDT
California authorities have rebuffed a request to investigate whether Sen. Charles Schumer helped fuel IndyMac Bancorp Inc.'s collapse by expressing concerns about the major mortgage lender's soundness.The California Attorney General's office said in a letter Thursday that there was "insufficient evidence" to investigate the New York Democrat under a state law against making false statements or spreading rumors about a bank's solvency.

Schumer's statements in June 26 letters to bank regulators were true and apparently drawn from public information, Assistant Attorney General Thomas Greene wrote. He also noted that the U.S. Constitution protects members of Congress from being prosecuted or sued for remarks made in their official capacity.

"Finally, while Senator Schumer's statements may have accelerated public concern about IndyMac's financial condition, we do not believe that we can prove that they caused the bank's failure," Greene wrote.

Schumer spokesman Brian Fallon declined to comment Saturday. He had previously said the information in the letters was true and publicly available.

Former IndyMac employees sought the probe, saying Schumer's publicly released letters spurred a run on the Pasadena, Calif.-based bank that led to a July 11 government takeover.

IndyMac was the second-largest financial institution to fail in U.S. history, regulators said.

The bank had suffered huge losses on mortgage-backed securities when Schumer communicated his "concern for the safety-and-soundness risks posed by IndyMac." He asked regulators what steps they were taking to prevent a collapse.

During the next 11 days, depositors scrambled to withdraw more than $1.3 billion. Regulators then seized IndyMac as hundreds of California customers waited on line for hours to demand their money. The Federal Deposit Insurance Corp. now operates IndyMac under a conservatorship.

Some regulators said Schumer bore part of the blame for the bank's collapse, as did the 51 former workers who sought the California probe.

Schumer's spokesman said earlier this week that "while we certainly empathize with the plight of the employees, their ire is better directed at the management of IndyMac."