Crime Paid Well – Until He Got Caught

The $67.5 million settlement by Angelo R. Mozilo in a civil fraud case brought by the Securities and Exchange Commission should send a clear signal.

If you know the company is going under, hiding risks from investors while engaging in insider stock sales will eventually catch up with you.

Angelo Mozilo, founder and former chief executive of Countrywide Financial Corporation, is the first financial executive to be personally penalized for excesses leading to the mortgage boom and bust. However, securities regulators are investigating former senior executives at Merrill Lynch for possible securities fraud.

Goldman Sachs has already paid a $550 million fine to settle similar charges against their company.

We don’t need to worry about Mr. Mozilo being forced to join the ranks of the homeless because of these fines.

Countrywide has been paying his legal fees and will pay $20 million of the $67.5 million fine. And, considering that his compensation during the period from 2000 through 2008 was $521.5 million, he should be able to continue his present lifestyle. He also profited by $140 million in gains on stock that he sold from November 2006 through October 2007.

One thing he cannot do in the future is serve as an officer or director of any public company.

It does seem a shame. Mr. Mozilo and his friend David Loeb started Countrywide in 1969. Together they built the company into the nation’s largest mortgage lender. They continued to thrive until they went into subprime lending.

Was this decision to grant “bad loans” a matter of greed – or of government dictates?

This case is also a clear example of a lesson some parents are trying to impress upon their children these days: “Don’t say anything on line or in an email that you don’t want the whole world to see.”

Part of the case against Mr. Mozilo stems from e-mails he sent starting in 2006. While Countrywide was boasting to investors about its high-quality loans, he and others in Countrywide were discussing the poor quality of those loans.

When discussing no-money-down loans to borrowers with poor credit , he said he had “Never seen a more toxic product.” He also decried the sloppy documentation practices within their organization and warned his colleagues about the adjustable rate mortgages that let buyers qualify at low, introductory “teaser” interest rates.

When the S.E.C. charged him with deliberately concealing the dangers from his investors, his e-mails were proof positive that he did know the risks they were taking, even as Countrywide assured investors that all was well.

Because of the complexity of the case and the possible consequences, both sides were willing to reach a settlement without going to trial. The S.E.C. knew that it in spite of the e-mails, it would not be a simple case to prove. A loss would have hurt their credibility going forward.

Had Mr. Mozilo lost, a criminal prosecution might have followed the civil case.


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