Former Countrywide Financial CEO Angelo Mozilo and two other former officials of the mortgage giant have been charged with fraud by federal regulators. This is the first government lawsuit against top corporate executives for actions related to the financial crisis. The Securities and Exchange Commission accused Mozilo, former Countrywide CFO Eric Sieracki, 52, and David Sambol, 49, former president, of falsely leading investors to believe the mortgage giant had avoided subprime-lending mistakes, even as Countrywide issued “riskier and riskier” loans.
Those loans generated billions in profits for Countrywide, a major player in the national subprime mortgage market that collapsed in 2007, helping start a global financial meltdown. As we have reported, Bank of America acquired Countrywide last year. Mozilo, a Countrywide co-founder renowned for his high salary and other corporate perks, was also charged with insider trading that allegedly produced profits of nearly $140 million on sales of the stock in the nation’s largest mortgage lender. The Los Angeles federal civil court lawsuit accused the three Defendants of failing to tell investors that Countrywide was:
• Matching any mortgage offered in the marketplace, even risky loans offered by subprime specialists.
• Approving a high percentage of loans with risks above the firm’s “increasingly lax” guidelines.
• Defining “prime” loans as mortgages approved for borrowers whose credit scores were “well below” any definition of prime credit quality.
According to SEC enforcement director, Robert Khuzami, evidence shows the three executives painted a cheerful “mirage” that falsely characterized Countrywide as operating under “prudent business practices and tightly controlled risk.”
“But the real Countrywide, which could only be seen from the inside, was buckling under the weight of deteriorating mortgages, lax underwriting and an increasingly suspect business model,” Khuzami said. As proof that the executives knew of Countrywide’s increasingly risky financial condition, the SEC lawsuit cited a corporate e-mail in which Mozilo allegedly told Sambol the firm was “flying blind” on how some risky loans would perform amid rising unemployment and slowing home sales.
In a separate e-mail to Sambol, Sieracki and others, Mozilo allegedly wrote that subprime mortgages had been originated “through our channels with disregard for process (and) compliance with guidelines.” The SEC charged that Mozilo, while aware of non-public red flags in the firm’s operations, established four stock sales plans, exercised more than 5.1 million Countrywide options and sold the underlying shares for nearly $140 million. The SEC seeks unspecified fines against the three individuals. The Commission also seeks repayment of allegedly improper stock gains by Mozilo and Sambol, who allegedly got at least $40 million in profits.
It’s good to see the SEC going after the “bad guys” who have knowingly committed fraud. We have known about the wrongdoing by Countrywide for a long time. Our firm has been suing Countrywide in fraud cases for about five years, representing clients who were victims of the fraud.
Source: USA Today
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