Nearly a decade of scrutiny from the U.S. government ended on Friday when federal prosecutors dropped their case against ex-Countrywide Financial CEO Angelo Mozilo, according to a Bloomberg report citing “people familiar with the matter.”
Mozilo, who was once known as “Mr. Subprime,” has become one of most the enduring figures of the financial crisis. The government sought to hold him responsible for precipitating the financial crisis; however, on Friday, Bloomberg reported that prosecutors in Washington and Los Angeles had decided not to further pursue their cases against Mozilo and other former Countrywide executives. The Justice Department sent Mozilo a letter stating they were not pursuing any further action against him, the report stated.
The U.S. Department of Justice, when reached by telephone by DS News, declined to comment on the matter.
Mozilo was defiant the whole time the government pursued him, vehemently denying any wrongdoing on his part. In a 2014 deposition, he said that he had “no regrets” about the way he managed Countrywide.
Curiously, the government’s decision not to pursue its case against Mozilo and other Countrywide executives comes about nine months after the Department of Justice issued a memo stating that they intended to seek prosecution of individuals for their role in precipitating the financial crisis, and not just go after the firms those individuals worked for.
Since the DOJ issued that memo in September, however, the government has brought no action against any individual with regard to the financial crisis.
“[C]ertainly many people have lamented the lack of criminal charges against high-level executives involved in the financial crisis,” said David Kwok, assistant professor of law at the University of Houston Law Center, in the November 2014 issue of DS News. “The challenge in bringing criminal fraud charges against executives is two-fold. First, to satisfy criminal charges, courts typically require that prosecutors prove beyond a reasonable doubt that the defendant executive knew they were committing fraud. It is generally insufficient to show that an executive was aware of a risk of fraud, unless the executive deliberately avoided learning about the fraud (ostensibly to avoid prosecution). Second, courts require that the counter-party be deceived. A common defense to fraud allegations is that the counter-party was aware of the true nature of the transaction and thus was not deceived.”
Two-time presidential candidate and former member of the House Committee on Government Oversight and Reform, Dennis Kucinich, said in the November 2014 issue of DS News, “Big fines to big companies without the individuals who were in charge of those companies having to be accountable under the law doesn’t cut it. The trillions of dollars of wealth that just disappeared overnight dealt a blow to Main Street that people still haven’t recovered from and some never will never recover from.”
Mozilo co-founded Countrywide Financial in 1969 and the company eventually rose to become the top mortgage lender in the United States. He reportedly earned $535 million between 1999 and 2008, according to compensation-research firm Equilar Inc.
In 2008, however, Bank of America acquired Countrywide for $4 billion after a large volume of Countrywide loans defaulted. That acquisition has resulted in billions of dollars in penalties and legal fees for Bank of America, including then-record $16.65 billion settlement with the government in August 2014 over the sales of faulty RMBS leading up to the crisis.
“[C]ertainly many people have lamented the lack of criminal charges against high-level executives involved in the financial crisis.”
David Kwok, Profesor, University of Houston Law Center
In May 2016, an appellate court overturned a $1.27 billion penalty imposed on Bank of America over the alleged misrepresentation of mortgage-backed securities sold by Countrywide Financial Corp. to the GSEs through a program known as the High Speed Swim Lane (HSSL, commonly known as “Hustle”). The appellate court cited insufficient proof under federal fraud statutes to hold the bank liable in connection with Countrywide's Hustle program.
At the same time, the court dismissed a $1 million fine against former Countrywide executive Rebecca Mairone.
While federal prosecutors may not be pursuing him further, Mozilo has not come out of the crisis completely unscathed. In October 2010, he agreed to pay $22.5 million in a settlement with the Securities and Exchange Commission (SEC) amid allegations of misleading Countrywide investors by reassuring them that the quality of Countrywide’s loan portfolio was not in danger. He also agreed to disgorge $45 million in stock gains due to alleged inflated prices. As part of that settlement, the SEC permanently banned Mozilo from serving in the capacity of officer or director for a public traded company.
(Editor’s note: Click here to view the cover story in November 2014’s issue of DS News magazine, “Justice Unserved,” about the government’s efforts to hold Mozilo responsible for the fall of Countrywide, and to a greater extent, for the entire financial crisis)