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SEC Charges Former Countrywide Chief Mozilo With Fraud, Insider Trading

The Securities and Exchange Commission (SEC) has formally accused former Countrywide Chief Executive Angelo Mozilo and two other top executives of defrauding investors. Mozilo also faces charges of insider trading.
On Thursday in a Los Angeles federal court, the SEC officially filed civil charges of securities fraud against Mozilo, former COO and President David Sambol, and former CFO Eric Sieracki. According to SEC officials, the trio deliberately misled investors about the substantial credit risks Countrywide took on to build the company into one of the nation's top mortgage lenders.
The SEC says that from 2005 to 2007, Countrywide significantly lowered its underwriting standards and commenced with contracting riskier and riskier loans. The agency says the company's senior executives knew that defaults and delinquencies would rise, but falsely assured investors that Countrywide was principally a prime-quality mortgage lender.
While making fraudulent public claims about the quality of Countrywide loans, _""Bloomberg News"":http://www.bloomberg.com_ reports Mozilo issued ""dire"" internal warnings about the company's exposure. According to _Bloomberg_, the SEC claims that in e-mails to staff, Mozilo described a ""particularly profitable subprime product as ‘toxic’,"" and wrote that Countrywide was ""flying blind"" and had ""no way"" to determine the risks of some adjustable-rate mortgages.
The SEC wrote in the suit that ""each of the defendants was aware, but failed to disclose, that Countrywide’s current business model was unsustainable.""
In a separate charge against only Mozilo, the SEC has also accused the housing entrepreneur of insider trading. The agency says Mozilo, with knowledge that Countrywide's business was deteriorating, began selling his shares of the business, turning a profit of nearly $140 million.
The company Mozilo helped start in 1969, and ran for almost 40 years, sustained substantial losses as the subprime crisis unfolded - about the same time investigators say Mozilo's sales of Countrywide stock began to pick up pace. Countrywide was bought by Bank of America in July of 2007, for $2.5 billion, and now faces its own slew of lawsuits related to alleged predatory lending practices and the mortgage meltdown.
Investigators' probes of Mozilo's transactions began in the fall of 2007, and although the SEC has now approved civil fraud charges, _""Reuters"":http://www.reuters.com_ reports federal prosecutors are at least several months away from deciding whether to bring criminal charges against Mozilo.
Laurie Levenson, a Loyola Law School professor, explained to _Reuters _that securities regulators generally have an easier time bringing fraud charges than criminal prosecutors, who must prove criminal intent and are usually pushing for imprisonment. ""In a civil case, you only have to show it's more likely than not that (the conduct) is a violation. Before we put people behind bars, they have to be proven intentionally criminally responsible,"" Levenson said.
Mozilo has denied any wrongdoing or misconduct.