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SEC Charges Mozilo With Fraud, Insider Trading

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SEC Charges Mozilo With Fraud, Insider Trading

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SEC Charges Mozilo With Fraud, Insider Trading

SEC Charges Mozilo With Fraud, Insider Trading

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Former Countrywide Financial head Angelo Mozilo has been charged with civil fraud and illegal insider trading. The Securities and Exchange Commission also accuses Mozilo and two other former Countrywide executives of "deliberately" misleading investors about the risks the firm took in the mortgage market.

RENEE MONTAGNE, host:

We turn now to one of the best known names among the high-flying mortgage lenders brought down by the mortgage crisis: Angelo Mozilo, cofounder of Countrywide Financial Corporation. Countrywide grew at a spectacular pace and became the nation's biggest home lender, but then it started to unravel in equally dramatic fashion when the crisis hit. Critics accused the company of sloppy and aggressive lending practices, and yesterday, the Securities and Exchange Commission went a lot farther. It is bringing a civil suit against Mozilo, charging him with fraud. NPR's Chris Arnold has more.

CHRIS ARNOLD: Angelo Mozilo ran Countrywide. You might have seen him testifying before Congress about the foreclosure mess. He always sported a crisp suit and an ever-present tan. That earned him some nicknames in the industry, the Orange King, or Tangelo instead of Angelo.

But Mozilo's bigger claim to fame is that he made a lot of money selling his Countrywide stock before the bottom fell out of his company, upwards of several hundred million dollars. Now the SEC is going after at least some of that money.

Mr. ROBERT KHUZAMI (Security 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 business model was deteriorating and faced a bleak future.

ARNOLD: Robert Khuzami is the director of the SEC's division of enforcement. He announced the charges at a press conference yesterday afternoon. It's no secret now, that during the housing boom, Countrywide made a lot of bad loans. That's why the company got into so much trouble, and Bank of America bought it for a fraction of its former value.

But the government is alleging that back when he was selling his stock, Mozilo was lying about how bad things were getting for the company.

Mr. KHUZAMI: In Mozillo's words, Countrywide was, quote, "A role model to others in terms of responsible lending." But the real story was very different.

ARNOLD: Khuzami singled out one type of loan called a pay-option ARM. These are loans where the homeowners can choose to pay a very small monthly payment, at least for a while. Down the road, the payments often get much bigger, making the loans hard to afford. Often Countrywide and other lenders never documented whether borrowers could afford those higher payments.

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.

ARNOLD: In another email released by the SEC, Mozilo called one type of the company's sub-prime loans, quote, "the most dangerous product in existence, and there can be nothing more toxic," end quote. So as in other high profile cases lately, emails are likely to play a central role.

Scott Myers is a securities defense lawyer in Chicago.

Mr. SCOTT MYERS (Attorney): These types of cases typically turn on what did someone know and when did they know it, and in the electronic age that becomes increasingly easier to determine, particularly when you can see the emails written in real time that purport to explain what these people actually knew and what they were thinking.

ARNOLD: Myers also thinks that this case might lead in some very interesting directions. Countrywide had business relationships with major investment banks and other large companies, so it will be interesting to see, he says, if the SEC has turned over any rocks that lead to other investigations or litigation involving those other companies. He also says the SEC doesn't bring these cases unless it thinks it has really strong evidence.

Robert Mance is another defense attorney and a former federal prosecutor at the Justice Department. He says that Mozilo's lawyers though, may be able to cast enough doubt here.

Mr. ROBERT MANCE (Attorney): As this case is filled out in discovery, typically what happens is that the bright lines that the government draws become a little more gray and the defense is going to try to argue that the information that the government's trying to suggest here is far from clear cut.

ARNOLD: Late yesterday, Angelo Mozilo's lawyer released a statement. It said the SEC lawsuit, quote, "does not reflect a balanced or fair consideration of the facts or the law," end quote.

Mozilo maintains that his stock sales were perfectly legal and his lawyer says that all of the SEC's allegations will be answered completely in court and disproved.

Chris Arnold, NPR News.

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MONTAGNE: It's NPR News.

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