Former Countrywide CEO Charged

The government is charging former Countrywide CEO Angelo Mozilo and two other executives from the mortgage lender with civil fraud. The Securities and Exchange Commission accuses Mozilo of illegal insider trading.

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ROBERT SIEGEL, host:

The Securities and Exchange Commission today filed civil fraud charges against Angelo Mozilo. He is the co-founder and former CEO of Countrywide Financial Corporation. Countrywide was one of the biggest home lenders in the U.S. until it became enmeshed in the mortgage crisis.

Robert Khuzami, director of the SEC's division of enforcement, announced the charges today.

Mr. ROBERT KHUZAMI (Director, Division of Enforcement, U.S. Securities and Exchange Commission): We are charging Mr. Mozilo with insider trading. According to our complaint, Mozilo raked in nearly $140 million while fully aware that Countrywide's businesses model was deteriorating and faced a bleak future.

SIEGEL: The charges make Mozilo the most prominent executive so far to face government legal action related to the financial crisis.

NPR's Chris Arnold is following this story, and he joins us now. And, Chris, give us some context here.

CHRIS ARNOLD: Hi, Robert. Well, you might remember Angelo Mozilo ran Countrywide, and Countrywide made a lot of those bad loans that everybody by now, over the past couple of years, has heard about, that were responsible for the foreclosure crisis and basically tanking the whole economy. And eventually those bad loans led to the company's collapse. The company was bought by Bank of America, kind of at a fire sale at the last minute.

But before that, Mozilo made hundreds of millions of dollars selling stock, and he sold a ton of stock and made a ton of money. And the SEC is now going after at least some of that money. It's going after $140 million.

SIEGEL: And is part of what the government's saying here, that Mozilo was misleading other investors while he himself was dumping stock?

ARNOLD: Exactly. And they say this is kind of a tale of two companies. There was the one company that was presented to the world and the investors - and that company, the SEC says, was a mirage, and the real company was falling apart inside because of all those bad loans. And the SEC singled out one particular kind of loan. They're called pay option ARM loans, and they can start out with very low payments, kind of, these, you know, negatively amortizizing(ph)…

(Soundbite of laughter)

SIEGEL: Amortizing.

ARNOLD: …negative loans. Amortizing, yes. And what that means is, you know, you're not even paying the - you're just not even paying the interest that you owe. So these loans can go up and up and up in their payments later on, kind of the payments explode, they can become very unaffordable. And they weren't very well-documented as far as, you know, can the borrowers afford that? And Robert Khuzami talked about these loans in the press conference today.

Mr. KHUZAMI: While Countrywide told the world that they were prudently underwriting these pay option ARMs, the fact is that Mozilo himself wrote in an email that Countrywide was flying blind when it came to how these mortgages would perform in the future.

SIEGEL: Chris, what do Mr. Mozilo or his lawyers have to say about this?

ARNOLD: Well, Robert, actually, I got this email just as you were introducing me here and - from Mr. Mozilo's lawyer - and the statement says, the lawsuit filed today by the SEC does not reflect a balanced or fair consideration of the facts or the law. The SEC allegations are baseless.

SIEGEL: Now, an insider-trading case, a white collar crime case is a pretty tough one to make, but this might not be the end of Mr. Mozilo's problems with the law.

ARNOLD: That's right. And, you know, first of all, these cases can be hard to prove. They can be very complicated. You know, also, he can always say, look, you know, nobody saw this coming. Look at all the banks that have run up on the rocks. And none of this was my fault. But he's not just facing this lawsuit, there are states that are suing him, investors have sued him, the FBI is investigating his former company, there could be criminal fraud charges. So, safe to say, Mr. Mozilo's lawyers are going to be very busy for a long time.

SIEGEL: Thank you, Chris.

ARNOLD: Thanks, Robert.

SIEGEL: That's NPR's Chris Arnold.

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