Angelo Mozilo,built Countrywide Financial Corp. into a California colossus of high-risk mortgage lending, has been charged

Angelo Mozilo,built Countrywide Financial Corp. into a California colossus of high-risk mortgage lending, has been charged with civil fraud and illegal insider trading by federal regulators who accuse him of deceiving shareholders and profiting on confidential information.The Securities and Exchange Commission also filed civil fraud charges against two other former executives of Countrywide, saying they and Mozilo "deliberately" misled investors about the risky lending practices the company undertook in its aggressive drive for a share of the booming mortgage market.
The SEC's civil lawsuit, filed Thursday in federal court in Los Angeles, named Mozilo, Countrywide's former chief operating officer David Sambol, 49, and ex-chief financial officer Eric Sieracki, 52.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. Countrywide became the biggest U.S. mortgage lender overall before it spiraled into disaster when the mortgage meltdown hit. It was bought by Charlotte, N.C.-based Bank of America Corp. in July 2008.Mozilo, 70, is the most high-profile individual to face formal charges from the federal government in the aftermath of the crisis. He has denied any wrongdoing and his attorney on Thursday called the SEC's allegations "baseless."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: "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."This is a tale of two companies," SEC Enforcement Director Robert Khuzami declared at a news conference at agency headquarters. "There was the one that investors saw from the outside, allegedly characterized by prudent business practices and tightly controlled risk. But the real Countrywide, which could only be seen from the inside, was one buckling under the weight of deteriorating mortgages, lax underwriting and an increasingly suspect business model," he said.Mozilo, Sambol and Sieracki "painted this mirage," Khuzami said.In addition, Mozilo "was actively taking his own chips off the table" by selling his shares to reap nearly $140 million in illicit profits, he said.
The SEC is seeking injunctions and unspecified civil fines against Mozilo, Sambol and Sieracki and wants them to be barred from serving as officers or directors of any public company. The agency also is seeking unspecified restitution of allegedly ill-gotten profits from Mozilo and Sambol.Mozilo's attorney David Siegel said the stock sales "complied with applicable laws and regulations, and were made under the terms of a series of written sales plans which were reviewed and approved by responsible professionals.""All of the SEC's allegations will be answered completely in court and disproved with the full facts and evidence," Siegel said in a statement.