Thursday, June 4, 2009

SEC Sues Angelo Mozilo

The government is finally going after the most prominent of the senior executive fraudsters responsible for the subprime mortgage crisis. The SEC has filed a civil suit against former Countrywide CEO Angelo Mozilo, plus his former CFO and COO, for allegedly profiting personally while keeping the home lender’s deteriorating finances from the public as the subprime mortgage crisis unfolded.

Readers will remember that stockholders and employees suffered when Countrywide's finances and stock price deteriorated to the point that it had to be acquired by Bank of America. Pension funds, investment banks, and other holders of securitized mortgages originated by Countrywide also suffered when the risks of those mortgages became known. Everyone has suffered from the resulting credit crisis.

According to Bloomberg , the SEC said that while publicly reassuring investors about the quality of his loans, Mozilo issued “dire” internal warnings and engaged in insider trading accelerating stock sales, profiting by $140 million. Penalties sought by the SEC include fines and forfeiture of profits.

Everyone hates Mozilo for his arrogance, but there is apparently good evidence of his willful wrongdoing. An internal email described a “particularly profitable subprime product as ‘toxic.’” He also wrote that Countrywide was “flying blind” and had “no way” to determine the risks of some adjustable-rate mortgages, the SEC said. The SEC's suit plainly says: “Each of the defendants was aware, but failed to disclose, that Countrywide’s current business model was unsustainable.”

We can only hope that criminal charges are not far off.