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Friday, June 5, 2009
SEC Charging Ex-Countrywide CEO Mozilo With Fraud
SEC charging former Countrywide CEO Angelo Mozilo, 2 other execs with civil fraud
By MARCY GORDON and GREG RISLING AP Business Writers
WASHINGTON June 4, 2009 (AP)
Federal regulators on Thursday charged Angelo Mozilo, the former chief executive of fallen mortgage lender Countrywide Financial Corp., with civil fraud and illegal insider trading in a prominent case arising from the financial meltdown.
The Securities and Exchange Commission also accused two other former executives of Countrywide of civil fraud, saying they and Mozilo "deliberately" misled investors about the risks the company assumed in its aggressive drive for a share of the booming mortgage market.
The SEC's civil lawsuit was filed in federal court in Los Angeles, naming Mozilo, Countrywide's former chief operating officer David Sambol, 49, and ex-chief financial officer Eric Sieracki, 52.
A trail of e-mail messages sent by Mozilo in 2006, before the subprime mortgage market collapsed in 2007, underlined the SEC's allegations.
"In all my years in the business I have never seen a more toxic product," Mozilo told Sambol in an e-mail on April 17, 2006. He was referring to the so-called 80/20 subprime loans that let borrowers borrow 100 percent of a home's value by borrowing 80 percent in the primary mortgage and then 20 percent in a secondary loan. "There has to be major changes in this program," Mozilo wrote.
Following a meeting with Sambol to discuss the company's holdings of so-called pay-option ARM loans, the Countrywide chief wrote on Sept. 26, 2006 that, "The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales."
Pay-option ARM loans allowed borrowers to choose from multiple payment options, including paying less than the interest due. Option adjustable-rate mortgages were among the worst-performing loans for repayment during the downturn in the real estate market.
Calabasas, Calif.-based Countrywide was a major player in the market for high-risk subprime mortgages, the disintegration of which touched off the financial crisis that has gripped the U.S. and global economies.
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