Countrywide Bank CEO Mazilo Charged With Fraud

The Securities and Exchange Commission announced on Thursday it has filed civil-fraud charges against former Countrywide Financial CEO Angelo Mozilo in what would be the highest-profile government legal action against a chief executive that has arisen so far from the financial crisis.

Mozilo was charged with “deliberately misleading investors about the significant credit risks being taken in efforts to build and maintain the company’s market share,” as well as with insider trading, according to the SEC.

Former Chief Operating Officer and President David Sambol and former Chief Financial Officer Eric Sieracki were also named by the SEC, which alleges that they “misled the market by falsely assuring investors that Countrywide was primarily a prime-quality mortgage lender that had avoided the excesses of its competitors.”

The SEC released emails in which Mozilo referred to certain mortgage products as “poison” and “toxic” at the same time Countrywide was making riskier and riskier moves with its lending operations.

“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,” said SEC Enforcement Director Robert Khuzami.

The SEC particularly criticized Countrywide’s use of so-called pay-option mortgages, which let borrowers pick their monthly payments levels even if those payments don’t cover the interest charges.

Also, Mozilo was widely criticized for selling some Countrywide stock for $140 million in profits by exercising 5.1 million options and selling the underlying shares — in 2006 and 2007, just as the mortgage market topped out — under a so-called executive sales plan, which was legal under federal securities rules.

Mozilo had modified the executive sales plan in late 2006 to accelerate his stock sales. Critics say he sped up them up because he was aware of problems at Countrywide.

Mozilo’s lawyer, David Siegel, said in a statement Thursday evening that “Mr. Mozilo acted properly and lawfully at all times as the CEO of Countrywide,” asserting that the stock “sales were entirely lawful, complied with applicable laws and regulations, and were made under the terms of a series of written sales plans which were reviewed and approved by responsible professionals.”

Siegel said the allegations that Mozilo knew about problems at Countrywide and didn’t disclose them was “demonstrably false.”

He reportedly added: “The lawsuit filed today by the S.E.C. does not reflect a balanced or fair consideration of the facts or the law.”

Walter Brown, an attorney for David Sambol, said the SEC “has no case” against his client. “This baseless complaint against Dave Sambol is the result of the tremendous political pressure the SEC is facing given its well-publicized enforcement failures,” Brown said. Brown is a partner at Orrick, Herrington & Sutcliffe, LLP.

Nicolas Morgan, an attorney for Eric Sieracki, said “the lawsuit that the SEC filed today against Mr. Sieracki is completely without merit.  Mr. Sieracki did not violate any securities laws and committed no fraud on anyone.”

Morgan continued, “Mr. Sieracki lost money just like all other investors in Countrywide stock when the credit markets seized up and real estate values declined.  He did not sell his Countrywide stock, rather he purchased  Countrywide stock during the time when the SEC wrongly alleges  Mr. Sieracki believed that Countrywide was withholding information from the market… We reject the allegations of the Complaint against Mr. Sieracki and we will defend the case vigorously.”

The SEC reportedly sent Mozilo a so-called Wells notice — a precursor to a civil lawsuit in an SEC investigation — several weeks ago. The Wells notice outlines to an individual or company what charges might be filed and gives a target a chance to respond. It must be approved by SEC commissioners.

Mozilo has been in some ways a poster child of the housing boom and bust. He kept a high profile as Countrywide turned into the nation’s top mortgage lender at the height of the housing boom in the middle part of the decade. He was often in the media, and was known for his deep tan and snazzy wardrobe.

But then, he became a lightning rod for criticism when the housing bubble burst, not only for the company’s loose underwriting rules but because of his high pay levels.

Bank of America (BAC: 13.2299, 0.3489, 2.71%) purchased Countrywide for $2.5 billion, a transaction which closed in July 2008. Not long after the transaction closed, BofA agreed to a settlement of nearly $9 billion with state attorneys general regarding Countrywide’s lending practices.

Mozilo reportedly stood to gain between $80 million and $115 million in severance on the sale, according to various analyses. In January of 2008, however, Mozilo had said he would give up $37.5 million of that severance amount.

http://www.foxbusiness.com/story/markets/countrywide-ceo-mozilo-charged-fraud/

One Response

  1. It is incredible to see just how out of touch our main stream media is.

    I have been researching the Mortgage predatory lending market for some time now, gathering a whole bunch of dirt on Angelo Mozilo, David Sambol, Kurland and others at Countrywide Home Loans. I uncovered more than a little dirt on Bank of America and its CEO Kenneth Lewis. But what moved me the most was coming across this Lone Ranger like character named David Merritt.

    This is a guy who got suckered into one of those Countrywide Predatory loans. He and his wife are first time home buyers who wanted to put 5 to 10 % down on their $729,000 home in Silicon Valley California – 2 miles from Yahoo headquarters, 4 from google and 5 from Apple.

    With just 2 days to remove their loan contingency, and with at least two other lenders ready to sell them a relatively decent mortgage, Countrywide talked them out of going with the competition by presenting a 1 to 3 percent, FHA Good Faith Estimate and declared: “if you can find someone to beat this loan, then go with them and we’ll pay the closing costs.”

    Countrywide staff were trained on how to determine how much knowledge a home buyer had, and they knew that the Merritts were suckers to be taken. Once they fired the other lenders and committed themselves to Countrywide, the Merritts found themselves locked into a 100% financing Pay Option ARM and HELOC which was destined to charged them over 2 million dollars. Countrywide had a policy of talking buyers out of putting down payments, and convincing them that they would give them a loan that was better. In fact, they would always tell home buyers that No One Could beat them and the truth was that they did beat everyone at the application stage in order to remove all the competition, but they left out that by the time the home buyer was closing escrow, most competitors would have done better.

    The Merritts signed a loan that was charging twice as much as the average lender. What is more is that they signed a loan which Countrywide assigned Mortgage Electronic Registration System as a lender. As it turns out, MERS was designed to be a front company which allows: 1) Note holders to hide from public scrutiny; 2) the duplication of one loan note that could be sold off to 2 or more investors or mortgage backed security pools: 3) evasion of paying local recorder fees; 4) Overriding state legislatures recording the laws on recording liens, beneficiaries and holders in due course; 5) attacking Public Policy in regards to its goals of protecting consumers and lenders from fraud via recording laws; and last, but not least, 6) being a conduit for billions of dollars to pass right by Uncle Sam and into Cayman or Canadian banks where no federal taxes can touch it.

    This is how Countrywide rose to the top. And they intentionally targeted elderly, minorities and unsophisticated first time buyers.

    Now in July 2008 Bank of America bought Countrywide out for 2 billion dollars. A company with assets that exceeded 20 billion, and servicing machine that churned out billions more.

    Bank of America went to all the states Attorneys Generals and asked them to bring lawsuits on behalf of their state citizens against Countrywide and to already agree to cut a sweet settlement deal with Bank of America. This was a strategy to persuade that Public that BofA was sincere about cleaning up the mess Mozilo and cronies created. But what is left out is that they are also trying to cut off home buyers ability to charge BofA with the predatory loans of Countrywide.

    Behind the scenes, BofA has been supporting Countrywide since 1969. It has always been in the predatory loan business, but through other front companies. For the longest, evidence shows, Kenneth Lewis was very close allies with Mozilo and planned with him to defraud Americans out of their home equity.

    It is so strange to see so many Americans enslaved to the Banking and Finance gangsters and not even know it, or if they do, just accept it.

    David Merritt is literally one of the 21st Century modern epics “David versus Goliath.” And all the has is a little sling and a rock against Goliaths billion dollar war armor. Check out some of his thoughts on many issues at wordpress.com/insightbeyondsight, but the 9th Circuit Court of Appeals has before it Merritt v. Countrywide, BofA, Wells Fargo et al, Docket No 09-17678 where he has charged straight at these Greedsters with RICO and other federal violation. And in Santa Clara Superior Court Merritt v. Mozilo et al No. 109CV159993.

    He is actually looking for other victims who have deeds of trust assigned to MERS and he wishes to help in anyway possible to fight these folks offensively , he prefers, but he has enough information to help defensively as well. Lawyers from around the country taps into this Big David. So circulate the word.

    Mark Doyle

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