This morning, in a courtroom in California, lawyers for Angelo Mozilo, former CEO of Countrywide Financial Corp., agreed to a settlement with the Securities and Exchange Commission (SEC).
Under the proposed settlement agreement, Mozilo and two others agreed to repay tens of millions of dollars to settle civil and insider trading charges, according to the Associated Press and the New York Times.
Mozilo agreed to repay $45 million in ill-gotten profits and $22.5 million in civil penalties. Former Countrywide President David Sambol will repay $5 million in ill-gotten profits and $520,000 in civil penalties, and former Chief Financial Officer Eric P. Sieracki will pay $130,000 in civil penalties.Under the agreement, as is usual in these sorts of cases, no one is admitting to any wrongdoing - and forget about getting an apology.
While a settlement of nearly $70 million sounds great, Mozilo walked away with nearly $140 million on shares he sold in 2006 and 2007, based (he is accused) on insider knowledge that the pay-option ARM profit bubble had burst and these loans were failing in droves.
It's a classic case of getting out while the going is good - and forgetting to tell millions of shareholders.
But don't feel bad that Mozilo has to give up a stack of change - if indeed he will have to pay the fine out of his own pocket at all. The Associated Press is now reporting that Countrywide Financial Corporation will pick up the $5 million fine for Sambol.
Walter Brown, Sambol's attorney issued the following statement:
"Mr. Sambol has agreed to settle the S.E.C. lawsuit and put the matter behind him for the benefit of his family and loved ones. Notably, in connection with the lawsuit's resolution, Countrywide Financial Corporation will pay the entire disgorgement amount prescribed in the settlement on Mr. Sambol's behalf. While the agreement with the S.E.C. prevents him from discussing the case, it makes clear that Mr. Sambol does not admit to any of the S.E.C.'s assertions."As Justin Bagdaddy, a colleague of Brown's, acknowledged in an email, Countrywide Financial Corporation is owned by Bank of America. Ultimately, it seems as though it will be Bank of America's shareholders who pick up the cost of the fine.
(As more about who is paying for what becomes clear, I'll update the post.)
Mozilo also paid himself handsomely during those last few years, a time when he had to have known that the party was over. While he gave up $38 million in severance and fees he was owed under his employment contract when Bank of America acquired what was left of Countrywide, he was also one of the highest paid CEOs ever, collecting $387 million in stock option and pay from 2002 to 2008.
Not only that, I presume that he still had shares in Countrywide that were converted into Bank of America shares and have done well in the past two years.
Subprime lending, which relied on exotic mortgages like pay-option ARMs to qualify folks who earned $50,000 per year for $500,000 mortgages, exploded at the start of the recession. It was the beginning of the housing bubble, and many of those loans started to go delinquent just a few months after they closed.
But most of those loans have been washed from the system. Today's housing and mortgage crisis is fueled by high-rates of long-term unemployment. And the situation is so bad, that this morning, Federal Reserve Chairman Ben Bernanke took to the airwaves to tell Americans that the Federal Reserve was ready to take drastic steps to improve the economy, including buying massive amounts of federal debt.
That will keep interest rates low for some time to come - perhaps almost as low as the pay-option ARM teaser rates of 1 and 2 percent that got Countrywide's Mozilo hooked on a profit high that just couldn't last.
The U.S. Attorneys office is continuing its criminal probe.
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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and The Equifax Personal Finance Blog, and is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.