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S.E.C. Accuses Countrywide’s Ex-Chief of Fraud
Angelo R. Mozilo, the Bronx-born businessman who built Countrywide Financial into the nation’s largest mortgage lender before it was knocked down by the credit crisis, has been charged with securities fraud and insider trading in a civil suit brought by the Securities and Exchange Commission.
Citing e-mail messages in which Mr. Mozilo referred to Countrywide loan products as “toxic” and “poison,” S.E.C. officials said he misled investors about growing risks in the company’s lending practices from 2005 through 2007. During this time, he also profited by selling stock in the company, gaining $140 million.
“This is the tale of two companies,” said Robert Khuzami, enforcement director at the S.E.C. “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.”
The suit also said David Sambol, former president of Countrywide, and Eric Sieracki, its former chief financial officer, concealed from investors the high-risk nature of the subprime loans that the company was making. Countrywide needed to maintain its position as the leading lender in a hot mortgage market, the S.E.C. said, and underwrote increasingly dangerous loans; all the while assuring investors that its loans were top quality.
On April 13, 2006, for example, the S.E.C. said, Mr. Mozilo wrote an e-mail message to Mr. Sambol and Mr. Sieracki stating that loans had been written with disregard for the company’s processes and compliance with its guidelines. He went on to describe subprime second mortgages, a product Countrywide was offering, as “poison.”
“Frankly, I consider that product line to be the poison of ours,” Mr. Mozilo wrote, according to the S.E.C.
And in an e-mail message on March 28, 2006, Mr. Mozilo referred to 100 percent loan-to-value subprime mortgages as “the most dangerous product in existence and there can be nothing more toxic,” the S.E.C. said.
The S.E.C. also contended that Mr. Mozilo sold shares in the company in late 2006 even though he knew that the types of loans that Countrywide was making to risky borrowers would perform poorly. His gains from these sales totaled $140 million, the suit said. The S.E.C. is seeking financial penalties and an order barring Mr. Mozilo from becoming a director or officer of a public company.
“The lawsuit filed today by the S.E.C. does not reflect a balanced or fair consideration of the facts or the law,” said David Siegel, a lawyer at Irell & Manella who represents Mr. Mozilo, in a statement. “Mr. Mozilo acted properly and lawfully at all times as the C.E.O. of Countrywide.”
Lawyers for Mr. Sambol and Mr. Sieracki did not immediately return phone messages requesting comment.
The subprime mortgage crisis hit Countrywide with full force before the end of 2007, and the lender was taken over by Bank of America last year. Reporting by Gretchen Morgenson for the New York Times. For more news and information, click the link below for www.nytimes.com. Support the New York Times and your local newspaper.
S.E.C. Accuses Countrywide’s Ex-Chief of Fraud – NYTimes.com.
