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Countrywide’s Former Chief Mozilo Settles SEC Charges for $67.5M

The co-founder and former CEO of what was once the largest, most lucrative subprime lender in the country has agreed to pay a total of $67.5 million to settle fraud charges brought against him.


Countrywide chief Angelo Mozilo will pay the Securities and Exchange Commission (SEC) a $22.5 million penalty to settle charges that he and two other former executives misled investors about the risk associated with Countrywide's business as the subprime mortgage crisis began to snowball. The SEC says Mozilo's financial penalty is the largest ever paid by a public company's senior executive in an SEC settlement.

Mozilo also agreed to $45 million in disgorgement of ill-gotten gains to settle the SEC's disclosure violation and insider trading charges against him. The settlement also permanently bars Mozilo from ever again serving as an officer or director of a publicly traded company.

Robert Khuzami, director of the SEC's division of enforcement, commented, ""Mozilo's record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he


saw from inside the executive suite - a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model.""

The ""SEC filed charges"":http://www.sec.gov/news/press/2009/2009-129.htm against Mozilo, as well as former Countrywide COO David Sambol and CFO Eric Sieracki, on June 4, 2009, alleging that the trio failed to disclose to investors the significant credit risk that Countrywide was taking on as a result of its efforts to build and maintain market share.

The SEC says investors were misled by representations assuring them that Countrywide was primarily a prime quality mortgage lender that had avoided the excesses of its competitors. In reality, Countrywide was writing increasingly risky loans and its senior executives knew that defaults and delinquencies in its servicing portfolio, as well as the loans it packaged and sold as mortgage-backed securities (MBS) would rise as a result, according to the federal agency.

The SEC's complaint further alleged that Mozilo engaged in insider trading in the securities of Countrywide by selling off his stock in the company, worth an estimated $140 million, while he was aware of material, non-public information concerning the company's increasingly risky lending habits and the poor performance of its loans.

Sambol also agreed to a settlement with the SEC, in which he is liable for $5 million in disgorgement and a $520,000 penalty, and a three-year officer and director bar. Sieracki agreed to pay a $130,000 penalty and a one-year bar from practicing before the SEC.

All penalties and disgorgement paid by the three will be returned to harmed investors. The SEC says in settling the charges, the former Countrywide executives neither admit nor deny the allegations against them.

About Author: Ed Delgado


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