On its face, the U.S. Securities and Exchange Commission’s 2011 fraud suit against three top executives of failed Cali­fornia thrift IndyMac Bancorp Inc. seemed like just the kind of tough action that Congress and the public craved in the wake of the financial crisis.

The executives allegedly misled investors and issued false statements about the health of the mortgage lender. “The federal securities laws do not become optional when the news is negative,” Lorin Reisner, deputy director of the SEC’s Enforcement Division, said in a February 11, 2011, news release announcing the suit.

But with an October 23 bench trial in Los Angeles federal court approaching, the SEC’s case during the past 15 weeks has been dramatically curtailed. What began with wide-ranging allegations was reduced by Judge Manuel Real last week to a single issue: whether IndyMac’s May 12, 2008, SEC ­filing accurately disclosed details about an $18 million capital contribution to its subsidiary, IndyMac Bank F.S.B.

To Covington & Burling partner D. Jean Veta, who represents former IndyMac chief executive officer Michael Perry, the case is “clearly an example of government overreaching,” she said, adding that the SEC’s allegations “can’t hold up.”

As for the SEC, spokesman John Nester said via email, “We continue to look forward to trying our case against the firm’s CEO and will continue to consider our options regarding the portion of the case that was dismissed.”

It’s not surprising the SEC went after IndyMac executives, given the bank’s size — $33 billion in assets at its peak. When it went under in July 2008, it was the second-biggest bank failure in U.S. history. (Washington Mutual’s megacollapse two months later bumped IndyMac to No. 3.)

Besides, the case gave the beleaguered agency ammunition to answer its critics that it hadn’t done enough to go after those who caused the financial crisis. As The New York Times approvingly opined at the time, “By announcing civil fraud charges against senior executives of what was once one of the country’s largest mortgage lenders, the S.E.C. has injected new life into its investigations of the financial crisis.”

COUNTERATTACK

But it soon became clear that the SEC had a fight on its hands. While one of the defendants, former IndyMac chief financial officer S. Blair Abernathy, immediately settled without admitting or denying the allegations and agreed to pay just over $125,000 in penalties and disgorgement, ex-CEO Perry responded with an aggressive and unusually public defense.

He launched a website, nottoobigtofail.-org — “The Facts about Mike Perry and IndyMac” — chronicling his legal woes. “Isn’t everyone entitled to defend themselves when they are unfairly and inaccurately publicly attacked?” wrote Perry, an accountant by training who worked his way up the banking industry starting at a small thrift in Sacramento, Calif.

He got his lawyers involved as well. Veta, who served as deputy associate attorney general from 2000 to 2001, has been quoted about the case in publications including The Wall Street Journal, the International Herald Tribune, the Los Angeles Times and The Associated Press.

It’s not exactly standard operating procedure for a Covington partner to comment on a client’s ongoing case. “Michael Perry wanted to make sure he got the truth out,” Veta said when questioned about the strategy. “Once the government files suit, an individual takes a huge reputational hit, regardless of the lack of merit in the government’s case. Sometimes you just need to stand up to the government and say ‘Enough is enough.’ “

Whether the public relations counter-attack has helped Perry is difficult to say, but it certainly hasn’t hurt him in court.

Since May, Real, who was nominated to the bench in 1966 by Lyndon Johnson, has been methodically dismantling the SEC’s case, dismissing almost all of the charges on summary judgment.

The first to be disposed of was the SEC’s demand that Perry and co-defendant A. Scott Keys, the chief financial officer of IndyMac until April 2008, disgorge their ill-gotten gains. (Keys, who was dismissed from the case by Real on May 31, was represented by Willkie Farr & Gallagher partner Gregory Bruch).

The company’s largest noninstitutional shareholder, Perry owned $69 million worth of IndyMac stock at the beginning of 2007 — the vast majority of his net worth, according to court papers. He bought another million dollars’ worth of shares that year, and $2.6 million more in February 2008 — and sold no shares from 2006 to 2008. Neither he nor Keys received a bonus in 2007 or 2008.

When the company went bankrupt in 2008, Perry was all but wiped out. There was, in essence, nothing left to disgorge.

“The SEC’s disgorgement claim against Defendants fails as a matter of law,” Real wrote in a May 31 summary judgment decision. “The SEC has failed to demonstrate that Defendants’ salaries and benefits would not have been given but for the allegedly false and misleading statements.”

DISCLOSURES TO INVESTORS

The nitty-gritty of the SEC’s complaint comes down to disclosures that IndyMac made to investors during an 11-week period in 2008 as the financial crisis was unfolding.

“Defendants knowingly or recklessly participated in IndyMac’s filing of false and misleading disclosures of its financial condition,” states the complaint, which was signed by SEC lawyer Nicholas Chung. (Donald Searles, John McCoy III and John Berry are also listed as SEC counsel on later court papers.)

The SEC alleged that IndyMac’s missteps began when it reported its 2007 results in an 8-K form. IndyMac acknowledged that 2007 was a “terrible” year, but said it finished the quarter in a “solid overall financial position.”

The SEC zeroed in on a statement that IndyMac wanted to “try and avoid raising capital externally right now” by selling stock.

In a hearing on May 21, Searles of the SEC argued that “the capital position of the bank was absolutely critical,” according to the court transcript. IndyMac’s management “appreciated the signals that would be sent to the markets if IndyMac resumed sales under its direct stock purchase plan program and told the market…they would not do so.”

But a February 19, 2008, spike in interest rates pushed IndyMac to the edge. The spike meant the bank’s forecasted capital ratio hovered at or slightly less than 10 percent — the critical threshold to be considered “well capitalized” by regulators.

Suddenly short of money, IndyMac began selling stock through the direct-purchase plan to maintain its 10 percent capital ratio. The SEC alleged that IndyMac failed to disclose this information, which “would have been material to reasonable investors.”

But Perry’s lawyers forcefully countered that although IndyMac said it didn’t want to raise capital, the SEC filing also “specifically stated that the company might need to raise capital,” according to court papers. The filing also disclosed — in present tense — that the direct stock-purchase plan was in effect.

Real was convinced. The SEC’s allegations “fail as a matter of law,” he wrote in granting summary judgment on May 31, because the SEC filing “clearly discloses that [IndyMac] was raising capital.”

The SEC also argued that IndyMac should have disclosed its revised internal forecast after the interest rate spike.

But Veta said that when the bank made its next filing, on February 29, the market had changed and the February 19 forecast had been superseded by a new one, where the capital ratio was not in jeopardy.

Real again sided with IndyMac. “There is no duty to disclose internal forecasts,” he wrote, tossing the claim on summary judgment.

The SEC also attacked forward-looking statements made by IndyMac such as that its “liquidity level is sufficient.” Again, Real rejected the SEC’s contentions on summary judgment, writing that “the statements were accompanied by specific warnings and cautionary language.”

The judge also declined to hold Perry liable for certain prospectuses because he “did not prepare, review or sign” them.

The case was whittled down even further last week, when Real rejected the SEC’s argument that IndyMac should have disclosed a waiver it got from its regulator, the Office of Thrift Supervision, to change how it weighed the risk of subprime assets.

“Failing to disclose the waiver and that the bank had transitioned away from double risk-weighting subprime assets were not material omissions,” Real said, according to a court transcript of the September 10 hearing.

He also rejected the SEC’s claim that Perry unlawfully made money selling stock via untrue statements of material fact. “He did not sell any stock during the relevant period, and his compensation was not earned as a result of fraud,” Real said.

As trial approaches, there is not much left of the SEC’s original case.

IndyMac failed in July 2008 after a run on the bank following comments by Senator Chuck Schumer (D-N.Y.), who expressed concerns about its “financial deterioration.”

THE REMAINS OF THE CASE

The remaining issue before the court involves an $18 million contribution that holding company IndyMac Bancorp made to IndyMac Bank. The funds were transferred because IndyMac’s outside auditor in May 2008 found a difference of $15.7 million in recorded profit and loss, which pushed the bank just below the all-important 10 percent capital threshold.

The SEC in its complaint said Perry “purportedly received [Office of Thrift Supervision] approval” to backdate the contribution. That meant it was counted as part of the first-quarter filing, giving the bank a capital ratio of 10.26 percent, not 9.98 percent. OTS approval aside, the SEC says this still made the bank’s first quarter filing “false and misleading.”

Whether that will be enough for the SEC to win civil penalties and an order barring Perry from serving as an officer or director of a public company remains to be determined at trial.

Jenna Greene can be contacted at jgreene@alm.com.