Posted on 05 Jun 2009
The Securities and Exchange Commission on Thursday said it had filed securities fraud charges against former Countrywide Chief Executive Angelo Mozilo and two other former executives.
The trio are being charged with deliberately misleading investors about the significant credit risk Countrywide took to build and maintain its market share.
Mozilo was also charged with insider trading for selling his Countrywide stock for nearly $140 million in profits while knowing that Countrywide's business model was deteriorating.
The SEC alleges that Mozilo, along with former COO and President David Sambol and former CFO Eric Sieracki, misled the market by falsely assuring investors that Countrywide was primarily a prime-quality mortgage lender.
"This is the tale of two companies," said Robert Khuzami, director of the SEC's Division of Enforcement. "Countrywide portrayed itself as underwriting mainly prime quality mortgages using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk."
From 2005 to 2007, Countrywide engaged in an unprecedented expansion of its underwriting guidelines and was writing riskier and riskier loans, according to the SEC. The senior executives knew that defaults and delinquencies would rise.
"Angelo Mozilo privately described one Countrywide product as 'toxic,' and said another's performance was so uncertain that Countrywide was 'flying blind,' " Khuzami said.
An attorney for Mozilo could not be reached immediately for comment.
Responding to reports of an investigation last month, the lawyer told CNNMoney.com that the "persistent innuendo" that Mozilo sold Countrywide shares because he knew of problems within the mortgage lender is "scandalous" and "inconsistent" with the facts.
"We do not believe there is any fair basis for allegations to be made against Mr. Mozilo," attorney David Siegel said in an e-mail on May 13. "All of Mr. Mozilo's stock sales were made in compliance with properly prepared and approved trading plans and reflected recommendations by his financial advisor over a long period of time."
Mozilo, who founded the company in a New York apartment, built Countrywide into the nation's largest mortgage lender. But Countrywide buckled during the housing meltdown and was acquired last year by Bank of America (BAC, Fortune 500).
Mozilo became a poster boy for the subprime crisis. He reportedly stood to collect a windfall of $115 million in the $4 billion sale to Bank of America. But after facing heavy criticism from lawmakers, Mozilo said he would forfeit $37.5 million in payments tied to the deal.