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.
Mozilo Defense Attorneys Wanted SEC Suit Dismissed
Back in late 2009, Mozilo’s defense team challenged the suit on the basis that company disclosures had been ignored and some evidence had been misquoted.
The attorneys representing two other defendants in the case, former Countrywide President David Sambol and former CFO Eric Sieracki, filed similar motions.
Mozilo’s lawyers noted that Countrywide had indeed provided ample disclosures that took into account the risk of such home loan programs as the now infamous pay option arm.
The SEC claimed Countrywide downplayed the risk of the lending products by noting that they were “prudently underwritten,” but Mozilo’s lawyers hit back, saying the full quote was actually, “While we believe we have prudently underwritten these loans, such loans present additional risks.”
But what about Mozilo’s own colorful description regarding one of Countrywide’s loan products that allowed customers to borrow their down payment, which he called “the most dangerous product in existence and there can be nothing more toxic” in an e-mail correspondence?
Well, his defense team claimed that product wasn’t “material” to the company’s financial condition and, as a result, wasn’t relevant to the securities-fraud charge.
Funnily enough, he supported the option arm back in March 2008, claiming it helped open the door to homeownership. It also helped to abruptly close it.
I guess Mozilo didn’t wriggle out of this one…