The Securities and Exchange Commission's informal inquiry into Countrywide Financial Corp. Chief Executive Angelo R. Mozilo has been under way for a while, a person familiar with the matter said Wednesday. The person spoke on condition of anonymity because the probe has not been made public.
Mozilo, who moved the company in 1969 from New York to the housing hotbed of suburban Los Angeles, has guided Countrywide through numerous boom-and-bust housing cycles. Now, Calabasas, Calif.-based Countrywide is cutting thousands of jobs amid the nation's mortgage crisis, and its shares have fallen more than 50 percent since January.
Mozilo sold some $130 million in Countrywide stock in the first half of the year through a prearranged 10b5-1 trading plan. The plans, popular among corporate executives, allow a company insider to set up a program in advance for such transactions and proceed with them even if he or she comes into possession of significant nonpublic information.
The SEC has been casting a wide net in its scrutiny of Wall Street banks, investors, credit-rating agencies and others and the role they played in the subprime mortgage crisis.
North Carolina state Treasurer Richard Moore last week asked the agency to investigate Mozilo's stock sales. Moore raised questions about changes made to Mozilo's plan in the months before the company's stock plunged, allowing Mozilo to significantly increase his sales of Countrywide shares.
Mozilo has sold company shares through prior arrangements since 2004; the pace of his sales began to quicken last October when he put a new plan into effect. Mozilo, who is 68, said recently that he did so to reduce his stake in Countrywide and diversify his personal investments in an orderly fashion in advance of his retirement, slated for December 2009.
Moore, the trustee of a pension fund that holds about 500,000 shares of Countrywide stock worth some $8.6 million, said in a letter to SEC Chairman Christopher Cox that he was "shocked" to learn Mozilo "apparently manipulated his trading plans to cash in" as the crisis involving high-risk mortgages was heating up.
"As one of many investors who have felt the painful losses in Countrywide stock, I am outraged at his manipulation of the system and this abuse of shareholders," wrote Moore, a Democrat who is running for governor. "The timing of these sales and the changes to the trading plans raise serious questions about whether this is mere coincidence."
Word of the SEC's inquiry "is good news for investors and sends a clear message that the questions raised are serious," Moore said in an e-mailed statement Wednesday.
Countrywide representatives didn't respond to a request for comment.
The SEC has declined to discuss the matter or its response to Moore's request. However, the agency's enforcement director, Linda Thomsen, said in a speech last week that it was taking a closer look at executives' stock-selling plans in general.
"We are making sure that a rule designed to help executives with a legitimate purpose is not being used for illegitimate purposes," Thomsen said.
The plans, which stipulate the number of shares to be sold by an executive, are meant to protect against accusations of trading on inside confidential information.
At the same time, the SEC has been examining mortgage lenders, mutual fund managers, lawyers, and company executives to determine whether there were missteps in accounting and disclosure.
Collapsed mortgage lender New Century Financial Corp. faces investigations by the SEC and the Justice Department as well as more than two dozen civil lawsuits.
Countrywide disclosed Tuesday that it expects to book a pretax charge of between $125 million and $150 million stemming from its plan to slash thousands of jobs amid rising mortgage defaults and foreclosures. Countrywide announced in early September that it would cut as many as 12,000 jobs, or about 20 percent of its work force.
It said it anticipates booking a charge of $57 million in the quarter ended Sept. 30, with the remainder to be recognized the following quarter, according to a regulatory filing.
Shares of Countrywide fell 38 cents, or 2.2 percent, to $16.97 in extended trading after news of the SEC probe. The stock ended Wednesday's regular session down 74 cents, or 4.1 percent, to close at $17.35 on below-average trading volume.