SEC Charges Ex-Countrywide CEO With Fraud
The government is charging Angelo Mozilo, the former chief executive of mortgage lender Countrywide Financial Corp., and two other company executives with civil fraud.
The Securities and Exchange Commission's case also accuses Mozilo of illegal insider trading, an agency spokesman said Thursday.
Countrywide was a major player in the subprime mortgage market, the collapse of which in 2007 touched off the financial crisis that has gripped the U.S. and global economies.
At its peak in 2005, Countrywide was known as the "Subprime King" and the nation's largest home loan lender - supplying $490 billion in mortgage lending in one year alone, reports CBS News investigative producer Laura Strickler. The SEC complaint notes that the risks of the collapse were foreseen by Mozilo and his two top executives as early as September 2004.
The SEC complaint describes emails detailing how Mozilo characterized the "sub prime seconds" loans as toxic. In an email dated April 17, 2006, Mozilo wrote, "In all my years in the business I have never seen a more toxic product."
Mozilo is the most high-profile individual to face formal charges from the federal government in the aftermath of the crisis.
Read Mozilo's email here.
Mozilo has denied any wrongdoing.
"The lawsuit filed today by the SEC does not reflect a balanced or fair consideration of the facts or the law," said Mozilo's attorney David Siegel in an email statement. "The SEC's allegations are baseless; Mr. Mozilo acted properly and lawfully at all times as the CEO of Countrywide."
Civil fraud charges also were filed against Countrywide's former chief operating officer David Sambol and ex-chief financial officer Eric Sieracki.
Paul Kranhold, a spokesman for Sambol, declined to comment because he hadn't seen the charges yet. An e-mail message to Sieracki's attorney, Shirli Fabbri Weiss, was not immediately returned.
The SEC and federal prosecutors have undertaken wide-ranging investigations of companies across the financial services industry, touching on mortgage lenders, the Wall Street investment banks that bundled home mortgages into securities sold to investors, and other market players.
The SEC's scrutiny of Mozilo's stock sales began in the fall of 2007 with an informal inquiry.
The filing of the agency's civil lawsuit in federal court in Los Angeles is a striking turn for Mozilo, the man who 40 years ago co-founded what grew into the nation's largest mortgage lender. He moved the company in 1969 from New York to the housing hotbed of suburban Los Angeles, guiding Countrywide through numerous boom-and-bust housing cycles.
After the mortgage crisis hit, Calabasas, Calif.-based Countrywide was forced to cut thousands of jobs and saw its shares plummet. Its downward spiral ended in it being bought by titan Bank of America Corp. in July 2008 for about $2.5 billion. Countrywide itself is the target of multiple lawsuits related to the mortgage meltdown.
Mozilo's influence stretched from the California real estate market through the corridors of power in Washington.
The Democrats were roiled a year ago by revelations that Sens. Christopher Dodd, the chairman of the Senate Banking Committee, and Kent Conrad, head of the Budget Committee, got mortgages at favorable rates through a VIP program dispensed by Countrywide for so-called "friends of Angelo."
Dodd insisted that the controversy over the two loans he received did not compromise his ability to lead Congress' efforts to address the effects of the subprime mortgage meltdown.
Mozilo sold about $130 million in Countrywide stock in the first half of 2007 through a prearranged 10b5-1 trading plan. These 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.
North Carolina's state treasurer, who asked the SEC in 2007 to investigate Mozilo's stock sales, raised questions about changes made to Mozilo's plan in the months before the company's stock plunged, which allowed Mozilo to significantly increase his sales of Countrywide shares.
Mozilo had sold company shares through prior arrangements since 2004; the pace of his sales began to quicken in October 2006 when he put a new plan into effect. Mozilo has said that he did so to reduce his stake in Countrywide and diversify his personal investments in an orderly fashion before his retirement, which was slated for December 2009.