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Mozilo PaysRecord Penalty For Securities Fraud
Agustino Fontevecchia, 10.15.10, 07:17 PM EDT
Charged with securities fraud and insider trading, former Countrywide CEO Angelo Mozilo reaches a settlement with the SEC.
The SEC announced on Friday that it had reached a settlement with former Countrywide CEO Angelo Mozilo under which he would have to pay $22.5 million to settle securities fraud charges. The penalty is the largest ever paid by a public company's senior executive.
Mozillo, who was charged along with Countrywide's COO and CFO, was also charged with insider trading for selling his Countrywide stock, worth $140 million, based on non-public information. The former CEO settled those charges too, agreeing to $45 million in disgorgement of ill-gotten gains. Mozillo was also permanently barred from serving as an officer or director of a publicly traded company. That brings Mozilo's payments up to a total of $67.5 million.
Countrywide Financial, which was described in a 2007 article in the New York Times as having become "a $500 billion home loan machine with 62,000 employees and assets of $200 billion", was founded by Angelo Mozilo and David Loeb in 1969.
According to the SEC, from 2005 to 2007, "Countrywide engaged in an unprecedented expansion of its underwriting guidelines and was writing riskier and riskier loans, which these senior executives were warned might ultimately curtail the company's ability to sell them." In 2005 and 2006, Countrywide ensured its investors that it produced high quality loans, but the SEC claims they were actually engaging in a "supermarket strategy."
"By the end of 2006, Countrywide's underwriting guidelines were as wide as they had ever been, and Countrywide made an increasing number of loans based on exceptions to those already wide guidelines, even though exception loans had a higher rate of default," reads the SEC release.
With banks and insurance companies revamping their securitization and mortgage backed security issuance, Countrywide found its margins being squeezed. That is when, during 2005 and 2006, Countrywide began to lend out more money and lower its underwriting standards, in an attempt to "build and maintain market share."
forbes.com
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