The Securities & Exchange Commission announced today it will charge former Countrywide CEO Angelo Mozilo and two others with civil fraud and insider trading, making Mozilo the most high-profile individual to face federal charges in the wake of the financial crisis.
Countrywide, once the nation's largest home mortgage lender, was blamed by many for its role in the subprime mortgage meltdown that kicked off the ongoing financial crisis. The company collapsed last year and was acquired by Bank of America.
Mozilo, who co-founded the company, became synonymous with predatory lending as many Americans fell into foreclosures after they took out risky loans through Countrywide and other lenders that they were unable to afford.
Mozilo is accused of selling his Countrywide stock based on insider information for nearly $140 million in profits.
"This is the tale of two companies," Robert Khuzami, director of the SEC's Division of Enforcement said at a press conference announcing the charges.
"Countrywide portrayed itself as underwriting mainly prime quality mortgages using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk. Angelo Mozilo privately described one Countrywide product as 'toxic,' and said another's performance was so uncertain that Countrywide was 'flying blind,'" Khuzami said.
Mozilo's lawyer called the charges "baseless" and said, "all of the SEC's allegations will be answered completely in court and disproved with the full facts and evidence."
"The lawsuit filed today by the SEC does not reflect a balanced or fair consideration of the facts or the law," attorney David Siegel said in a statement. " The SEC's allegations are baseless; Mr. Mozilo acted properly and lawfully at all times as the CEO of Countrywide."
Civil fraud charges also were filed against Countrywide's former chief operating officer David Sambol and ex-chief financial officer Eric Sieracki.
In addition to the federal government's civil case, there is also an active FBI investigation into whether the government will proceed with a criminal case against Mozilo. Sources said it could be weeks or months before the government decides to press criminal charges.
Countrywide built much of its growth on risky home loans, such as subprime and option adjustable-rate mortgages that often left borrowers owing more than their homes were worth.
"Angelo Mozilo had access to detailed and alarming information about Countrywide's operations," Rosalind Tyson, director of the SEC's Los Angeles regional office, said in a press release. "He knew that Countrywide was gambling with increasingly risky mortgages and he kept those details from investors while he was actively taking his own chips off the table."
For many, the perpetually tan Mozilo and his company Countrywide quickly became the face of everything that was wrong with the housing market -- the company profiting from writing volumes of mortgages that later came to haunt the homeowners who thought they were making their dream purchases.