Countrywide Sued Over 401k Stock Plan
Wednesday September 12, 5:31 pm ET
By Alex Veiga, AP Business Writer
Countrywide Sued Over Losses in 401k Retirement Plan
LOS ANGELES (AP) -- A lawsuit filed against Countrywide Financial Corp. on behalf of its employees claims the mortgage lender failed to warn its employees about the depth of its financial troubles, resulting in heavy stock losses in their 401k retirement accounts.
The lawsuit, filed Tuesday in U.S. District Court in Santa Ana, seeks class-action status and names as defendants Countrywide Chairman and Chief Executive Angelo Mozilo and benefits committee members in charge of the retirement plan.
Calabasas, Calif.-based Countrywide has struggled as the housing slump led to a sharp rise in mortgage defaults and foreclosures, particularly among subprime borrowers or those with weak credit. The company last week announced plans to cut as many as 12,000 jobs.
The lawsuit claims that plan managers "continued to offer Countrywide stock as an investment option and match in Countrywide stock when the stock no longer was a prudent investment for participants' retirement savings."
"We believe that they knew that it became ... a risky investment," attorney Steve Berman, who is representing plaintiffs, said Wednesday.
The lawsuit claims the retirement plan lost hundreds of millions of dollars. It seeks unspecified compensatory damages and the appointment of an independent trustee to manage the plan.
Employees decided how much of their salary to set aside in their retirement plan based largely on their understanding of the company's financial picture, Berman said.
The plan held around $349.9 million in Countrywide stock as of Dec. 31, according to a company filing with the Securities and Exchange Commission cited in the lawsuit.
The holdings amounted to about 33 percent of the plan's total assets, the lawsuit said.
A call to Countrywide was not immediately returned.
Countrywide shares declined 26 cents, or 1.5 percent, to $16.62 Wednesday.
The company's shares have plunged from a 52-week high of $45.26 in January to a low of $15 in mid-August.
The lawsuit was filed on behalf of Marc Cruz of Orange, identified as a Countrywide employee participating in the retirement plan.
Dozens of other employees have joined the case, Berman said.
The lawsuit accuses CEO Mozilo and other defendants of breaching their fiduciary duties under the Employee Retirement Income Security Act between Oct. 27, 2005 and Aug. 9, 2007.
In recent weeks, the company borrowed $11.5 billion and sold a $2 billion stake to Bank of America so it could keep operating its retail banking and mortgage lending businesses.
In calls with analysts, Mozilo "was trumpeting the value of Countrywide stock and the company, and we don't believe he was adequately disclosing the risks involved," Berman said.
Berman said the retirement plan is still heavily invested in Countrywide stock. He contended management has a vested interest in seeing the retirement plan doesn't dump the shares.
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