Former Countrywide CEO Angelo Mozilo will pay a record $22.5 million penalty to settle SEC charges that claim he and two other executives misled investors as the mortgage crisis took flight.
Mozilo also agreed to pay $45 million in “disgorgement of ill-gotten gains” to settle the SEC’s disclosure violation and insider trading charges, for a total settlement of $67.5 million, which will be returned to affected investors.
As part of the settlement, Mozilo is also permanently barred from serving as an officer or director of a public company.
“Mozilo’s record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite — a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model,” said Robert Khuzami, Director of the SEC’s Division of Enforcement, in a statement.
Former Countrywide COO David Sambol also agreed to pay $5 million in disgorgement and a $520,000 penalty, along with a three-year officer and director bar.
Additionally, former CFO Eric Sieracki agreed to a $130,000 penalty and a one-year bar from practicing before the Commission.
The SEC alleged that the trio failed to disclose to investors the significant credit risk Countrywide was taking to build and maintain mortgage market share.
Countrywide apparently misled investors by claiming it was essentially a prime mortgage lender, though in reality it was originating tons of high-risk mortgages (such as the now infamous option arm), leading to scores of defaults and subsequent losses.
Mozilo seemed to know full well of the looming crisis, as he dumped his shares in the company before the stock price plummeted.
As part of the settlement, the former executives neither admitted nor denied the allegations against them.