June 4, 2009
Angelo R. Mozilo, the Bronx-born businessman who built Countrywide Financial into the nation’s largest mortgage lender before it was knocked down by the credit crisis, has been charged with securities fraud and insider trading in a civil suit brought by the Securities and Exchange Commission.
Citing e-mail messages in which Mr. Mozilo referred to Countrywide loan products as “toxic” and “poison,” S.E.C. officials said Thursday that he misled investors about growing risks in the company’s lending practices from 2005 through 2007. During this time, he also profited by selling stock in the company, gaining $140 million.
“This is the tale of two companies,” said Robert Khuzami, enforcement director at the S.E.C. “Countrywide portrayed itself as underwriting mainly prime-quality mortgages using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk.”
The suit also said that David Sambol, former president of Countrywide, and Eric P. Sieracki, its former chief financial officer, concealed from investors the high-risk nature of the subprime loans that the company was making. Countrywide needed to maintain its position as the leading lender in a hot mortgage market, the S.E.C. said, and underwrote increasingly dangerous loans, all the while assuring investors that its loans were top quality.
On April 13, 2006, for example, the S.E.C. said, Mr. Mozilo wrote an e-mail message to Mr. Sambol and Mr. Sieracki stating that loans had been written with disregard for the company’s processes and compliance with its guidelines. He went on to describe subprime second mortgages, a product Countrywide was offering, as “poison.”
“Frankly, I consider that product line to be the poison of ours,” Mr. Mozilo wrote, according to the S.E.C.
And in an e-mail message on March 28, 2006, Mr. Mozilo referred to 100 percent loan-to-value subprime mortgages as “the most dangerous product in existence and there can be nothing more toxic,” the S.E.C. said.
The S.E.C. also contended that Mr. Mozilo sold shares in the company in late 2006 even though he knew that the types of loans that Countrywide was making to high-risk borrowers would perform poorly. His gains from these sales totaled $140 million, the suit said. The S.E.C. is seeking financial penalties and an order barring Mr. Mozilo from becoming a director or officer of a public company.
“The lawsuit filed today by the S.E.C. does not reflect a balanced or fair consideration of the facts or the law,” David Siegel, a lawyer at Irell & Manella who represents Mr. Mozilo, said in a statement. “Mr. Mozilo acted properly and lawfully at all times as the C.E.O. of Countrywide.”
A lawyer for Mr. Sambol said that the S.E.C.’s case was baseless and that it disregarded public statements Mr. Sambol made detailing liberal lending practices at Countrywide.
Mr. Sieracki’s lawyer also said that the regulator’s case had no merit. “Mr. Sieracki did not violate any securities laws and committed no fraud on anyone,” said Nick Morgan, a lawyer at DLA Piper in Los Angeles. He added that his client lost did not sell shares in Countrywide and even purchased them during the period cited by the S.E.C.
The subprime mortgage crisis hit Countrywide with full force before the end of 2007, and the lender was taken over by Bank of America last year.
Source:
NY TIMES
By GRETCHEN MORGENSON
Angelo R. Mozilo, the Bronx-born businessman who built Countrywide Financial into the nation’s largest mortgage lender before it was knocked down by the credit crisis, has been charged with securities fraud and insider trading in a civil suit brought by the Securities and Exchange Commission.
Citing e-mail messages in which Mr. Mozilo referred to Countrywide loan products as “toxic” and “poison,” S.E.C. officials said Thursday that he misled investors about growing risks in the company’s lending practices from 2005 through 2007. During this time, he also profited by selling stock in the company, gaining $140 million.
“This is the tale of two companies,” said Robert Khuzami, enforcement director at the S.E.C. “Countrywide portrayed itself as underwriting mainly prime-quality mortgages using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk.”
The suit also said that David Sambol, former president of Countrywide, and Eric P. Sieracki, its former chief financial officer, concealed from investors the high-risk nature of the subprime loans that the company was making. Countrywide needed to maintain its position as the leading lender in a hot mortgage market, the S.E.C. said, and underwrote increasingly dangerous loans, all the while assuring investors that its loans were top quality.
On April 13, 2006, for example, the S.E.C. said, Mr. Mozilo wrote an e-mail message to Mr. Sambol and Mr. Sieracki stating that loans had been written with disregard for the company’s processes and compliance with its guidelines. He went on to describe subprime second mortgages, a product Countrywide was offering, as “poison.”
“Frankly, I consider that product line to be the poison of ours,” Mr. Mozilo wrote, according to the S.E.C.
And in an e-mail message on March 28, 2006, Mr. Mozilo referred to 100 percent loan-to-value subprime mortgages as “the most dangerous product in existence and there can be nothing more toxic,” the S.E.C. said.
The S.E.C. also contended that Mr. Mozilo sold shares in the company in late 2006 even though he knew that the types of loans that Countrywide was making to high-risk borrowers would perform poorly. His gains from these sales totaled $140 million, the suit said. The S.E.C. is seeking financial penalties and an order barring Mr. Mozilo from becoming a director or officer of a public company.
“The lawsuit filed today by the S.E.C. does not reflect a balanced or fair consideration of the facts or the law,” David Siegel, a lawyer at Irell & Manella who represents Mr. Mozilo, said in a statement. “Mr. Mozilo acted properly and lawfully at all times as the C.E.O. of Countrywide.”
A lawyer for Mr. Sambol said that the S.E.C.’s case was baseless and that it disregarded public statements Mr. Sambol made detailing liberal lending practices at Countrywide.
Mr. Sieracki’s lawyer also said that the regulator’s case had no merit. “Mr. Sieracki did not violate any securities laws and committed no fraud on anyone,” said Nick Morgan, a lawyer at DLA Piper in Los Angeles. He added that his client lost did not sell shares in Countrywide and even purchased them during the period cited by the S.E.C.
The subprime mortgage crisis hit Countrywide with full force before the end of 2007, and the lender was taken over by Bank of America last year.
Source:
NY TIMES
By GRETCHEN MORGENSON
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