Breaking: SEC Charges Subprime King Angelo Mozilo with Civil Fraud

This post is a personal indulgence. Though the Yahoo board is long gone and $30 puts a distant memory I’ll never forget “Quislingman”, Pete Frampton Live, Subprime Usury Scam, and the rest of the gang. I sometimes wonder what ever happened to the bean counter from Jersey who was recommending CFC to his brokerage clients. The difference between Benjamin Graham and that fellow was that Ben could actually spot an undervalued stock. Yahoo! Finance has the A/P story:

The government is charging Angelo Mozilo, the former chief executive of mortgage lender Countrywide Financial Corp., and two other company executives with civil fraud.

The Securities and Exchange Commission’s case also accuses Mozilo of illegal insider trading, an agency spokesman said Thursday.

Countrywide was a major player in the subprime mortgage market, the collapse of which in 2007 touched off the financial crisis that has gripped the U.S. and global economies.

Mozilo is the most high-profile individual to face formal charges from the federal government in the aftermath of the crisis.

Mozilo has denied any wrongdoing. His attorney did not immediately return an e-mail message for comment Thursday afternoon.

Civil fraud charges also were filed against Countrywide’s former chief operating officer David Sambol and ex-chief financial officer Eric Sieracki.

Paul Kranhold, a spokesman for Sambol, declined to comment because he hadn’t seen the charges yet. An e-mail message to Sieracki’s attorney, Shirli Fabbri Weiss, was not immediately returned.

The SEC and federal prosecutors have undertaken wide-ranging investigations of companies across the financial services industry, touching on mortgage lenders, the Wall Street investment banks that bundled home mortgages into securities sold to investors, and other market players.

The SEC’s scrutiny of Mozilo’s stock sales began in the fall of 2007 with an informal inquiry.

The filing of the agency’s civil lawsuit is a striking turn for Mozilo, the man who 40 years ago co-founded what grew into the nation’s largest mortgage lender. He moved the company in 1969 from New York to the housing hotbed of suburban Los Angeles, guiding Countrywide through numerous boom-and-bust housing cycles.

After the mortgage crisis hit, Calabasas, Calif.-based Countrywide was forced to cut thousands of jobs and saw its shares plummet. Its downward spiral ended in it being bought by titan Bank of America Corp. in July 2008 for about $2.5 billion. Countrywide itself is the target of multiple lawsuits related to the mortgage meltdown.

Mozilo sold about $130 million in Countrywide stock in the first half of 2007 through a prearranged 10b5-1 trading plan. These plans, popular among corporate executives, allow a company insider to set up a program in advance for such transactions and proceed with them even if he or she comes into possession of significant nonpublic information.

North Carolina’s state treasurer, who asked the SEC in 2007 to investigate Mozilo’s stock sales, raised questions about changes made to Mozilo’s plan in the months before the company’s stock plunged, which allowed Mozilo to significantly increase his sales of Countrywide shares.

The amazing thing to me is that we’ve not had more of this type news to date. I will disclose that I am aware of two other active investgations involving large financial services companies the most recent landing on my radar screen when I was informally contacted for help by another state’s AG’s office in finding offshore financial instruments involving RMBS and other CDOs online.  As the AP story makes clear what we are seeing unfold now is the tip of the iceberg involving toxic paper misdeeds.

sop

7 thoughts on “Breaking: SEC Charges Subprime King Angelo Mozilo with Civil Fraud”

  1. One down and alot more to go. I wondered why these CEO’s even bothered to work. They were ALL such good investors. Ed Liddy always got out at the top of the market.

  2. Great read indeed. It was so easy to spot too because the numbers never quite added up.

    Sounds like the SEC has the goods on Mozilo, my question is from what is alleged in the civil suit why a criminal prosecution under Sarbanes Oxley hasn’t been initiated. Mozilo was on CNBC often in 2006 with that tan and million dollar smile telling everyone how great things were when he evidently knew otherwise.

    sop

  3. It is incredible to see just how out of touch our main stream media is.

    I have been researching the Mortgage predatory lending market for some time now, gathering a whole bunch of dirt on Angelo Mozilo, David Sambol, Kurland and others at Countrywide Home Loans. I uncovered more than a little dirt on Bank of America and its CEO Kenneth Lewis. But what moved me the most was coming across this Lone Ranger like character named David Merritt.

    This is a guy who got suckered into one of those Countrywide Predatory loans. He and his wife are first time home buyers who wanted to put 5 to 10 % down on their $729,000 home in Silicon Valley California

  4. You got it Mark. Great comment. On the old Yahoo board they didn’t bother trying to hide it (probably explains why Yahoo deleted the board which it does not do with all stock boards of defunct companies). The amazing part is greedy little piggies kept buying the stock despite the truth literally bitch slapping them in the face as Mozilo and company were exercising their calls and selling out as fast as they could. The self destructive behavior from the retail buyers is exactly what stoked my interest in behavioral finance and its cousin behavioral economics.

    Those concepts translate exactly into what you are saying about how they hooked people into taking very bad deals on their mortgages. That CFC blogger didn’t call himself subprime_usuary_scam for nothing.

    Of course it is easy to be brazen when you had the chair of the Senate banking committee, Chris Dodd, in your back pocket. And just think this is the guy who is heading up the new financial regulation effort in the Senate. What a joke! Dodd and his pretty young wife belong in handcuffs.

    sop

  5. Mozilo generally hid everything in plain site. Most of what people complain about were in the SEC filings. It’s just that none of the “analysts” were ever much interested in doing all that reading.

    Somewhere in our time frame, they made a major change in the way the accounted for their earnings on their servicing operations. They made a comment in the general summary and than bury the numbers in main body. If memory serves me correctly it pumped their earnings about 10% for that one reporting period.

    Not a single analyst said anything.

  6. Negative Am. We discussed it on the board in depth. As I recall it was the main reconciler between earnings and the far poorer cash flow numbers.

    Bringing up stock analysts is about like bringing up Jimbo the Clown around these parts.

    sop

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