Countrywide CEO Charged with Securities Fraud
In a step that has securities attorneys and law experts all praise for the Securities and Exchange Commission, former Countrywide Financial Corp. chief executive Angelo Mozilo has been charged with securities fraud.
The SEC has charged Mozilo, former chief operating officer David Sambol, and former chief financial officer Eric Sieracki with misleading investors about risks the company took to increase its market share. The three have been accused of falsely telling investors Countrywide Financial avoided underwriting risky loans. According to Robert Khuzami, the SEC’s enforcement director, Countrywide Financial promoted its image as a company that used “high underwriting standards” and was engaged in underwriting prime quality mortgages. However, behind the scenes, the company functioned recklessly, taking on high risks.
According to the SEC, Mozilo also made $140 million selling Countrywide financial shares around the same time he, in email messages, referred to the company’s loan products as “toxic “ and “poison”. The agency, which cited these emails, says they proved Mozilo mislead investors about the company’s risky lending practices. Mozilo has been charged with insider trading, because he sold Countrywide stock based on “non public information”.
The civil suit filed by the SEC is one of the most important filed against people involved in the mortgage crisis. Countrywide was the country’s largest mortgage lender and was heavily engaged in offering housing loans to high risk borrowers.
The company also faces a class action lawsuit filed by several New York City pension funds that have lost tens of millions of dollars because of the company's recklessness.
The SEC, in recent years, has seen its reputation erode as a result of the financial crisis. It has been heavily criticized by securities attorneys for its failure to enforce federal securities laws. However, the agency, under new leadership, has been embarking on a campaign to clear its reputation and add more bite to its enforcement actions.
