Watchdog: Federal Regulators Engaged in “Inappropriate” Backdating At Thrifts Like IndyMac

ABC News’ Matthew Jaffe reports: The Treasury Department’s Inspector General announced Thursday that they had found "inappropriate" backdating of cash infusions at six thrifts, including the failed IndyMac, marking the latest blow for a government agency already battered by backdating problems.  "We reviewed the circumstances surrounding the backdating of capital contributions to prior periods at six thrifts and concluded that the backdating of these transactions was inappropriate for all six thrifts," Treasury watchdog Eric Thorson said in a report. In two instances, the watchdog concluded, federal regulators at the Office of Thrift Supervision knew about the backdating and signed off on it. "We consider these matters very serious and find it alarming that such high level OTS officials were not only aware of the backdating at two thrifts, but either directed or authorized the thrifts to backdate the capital contribution," the IG stated. "For one thrift, the OTS Senior Deputy Director directed the regional office to instruct the holding company to contribute capital and backdate the transaction," Thorson said. "For another thrift, IndyMac, an OTS regional director authorized the backdating of the transaction." By backdating capital infusions, institutions like IndyMac made themselves appear more well-capitalized than they really were. In doing so, they managed to avoid being forbidden from accepting brokered deposits, a key source of funding. In the case of IndyMac, by putting a capital infusion on its balance sheet for a quarter even though the infusion wasn’t made until after the quarter ended, the institution looked to have a better capital position than it really had. IndyMac’s failure eventually cost the FDIC over $10 billion. Sen. Chuck Grassley, the ranking member on the Finance Committee, called Thursday’s report "disturbing." "This report paints the disturbing picture of a regulatory agency being much too cozy with the industry it’s supposed to be regulating," the Iowa lawmaker said in a statement. "It’s completely unacceptable that the Office of Thrift Supervision allowed itself to become a party to misleading depositors and investors about when the thrifts received additional capital. The agency needs to make sure this doesn’t happen again and hold the appropriate people accountable." Thursday’s report is only the most recent blemish for the OTS. The agency’s director John Reich resigned at the end of February. In his place, Scott Polakoff was then named as acting director, but in late March, Polakoff was placed on leave by Treasury Secretary Tim Geithner pending a review.  — Matthew Jaffe