Former Countrywide CEO Mozilo Charged with Fraud

The Securities and Exchange Commission formally charged Angelo Mozilo, the former CEO of Countrywide Financial Corp., with fraud and illegal trading this past week.

Countrywide was one of the major players in the 2007 subprime mortgage meltdown that kicked off the current global financial crisis. Countrywide COO David Sambol was also charged with civil fraud, as was Countrywide former chief financial officer Eric Sieracki.

SEC enforcement director Robert Khuzami charged that under the direction of the three executives, Countrywide deliberately misled  shareholders by painting a picture of a healthy, growing company that was in fact crumbling under the weight of bad loans.

Mozilo sold his own shares of Countrywide stock for a profit of over $120 million during this crucial time. In other words, according to the SEC, while Mozilo talked about profits in glowing terms at shareholder meetings, he was quietly cashing in his own chips.

The SEC charges are among the first to be directed at high-ranking staff at mortgage companies and lending institutions. Recently, when asked about possible indictments of corporate executives in the financial industry and the mortgage industry, Attorney General Eric Holder refused to comment, saying he was not at liberty to discuss the matter one way or the other at this time. He would neither confirm nor deny that whether the Justice Department would also get involved, but his refusal to answer hints that such involvement is at least on the table.

The SEC is currently conducting wide-ranging investigations of mortgage brokers, mortgage companies, and investment banks in regard to the bundling of home mortgages into securities.

Mozilo personally saw Countrywide grow from a small concern to the largest mortgage company in the business. In 2007, when the subprime market imploded, Countrywide was forced to cut thousands of jobs and its shares plummeted. It was finally sold to Bank of America in July of 2008 for $2.5 billion, a fraction of its former worth.

Countrywide is currently the target of many lawsuits related to the making and selling of subprime mortgages. By some accounts, at the worst of it, the records at the mortgage behemoth were in such disarray and confusion that it was difficult for real estate agents to contact the corporation at any number.

Agents told stories about rising at 2 AM or 3 AM to call Countrywide so as to be able to leave a message before the answering machine at its 800 number filled up completely, which it generally did by 7 AM each day.

So many federal and state disclosure laws were apparently broken during the height of the bubble that 'forensic mortgage' services have popped up all over the country to investigate and document them for individual homeowners, thereby giving them leverage for a loan modification or to forestall an impending foreclosure.