Former Countrywide Financial Corp. directors, including ex-Chief Executive Officer Angelo Mozilo, should be forced to face claims that they misled investors about the quality of the mortgage-lender’s loans, a lawyer for shareholders told an appeals court.
Delaware’s corporate laws shouldn’t allow Mozilo and other former board members to escape liability for lying to investors simply because directors rushed to sell the ailing lender in 2008 to Bank of America Corp., Stuart Grant, an attorney for shareholders, told the Delaware Supreme Court today.
A federal appeals court asked Delaware’s highest court to decide whether the state’s corporate statutes eliminate investors’ rights to sue directors for allegedly fraudulent acts when a company is acquired. More than 60 percent of Fortune 500 companies are incorporated in Delaware and its laws are widely used to decide corporate disputes.
Investors’ claims shouldn’t be “thwarted by a merger that was actuated by fraud,” Grant told the appeals court at a hearing in Dover.
Countrywide investors are hoping the Delaware court’s ruling will allow them to revive lawsuits filed in federal court in Los Angeles aimed at holding Mozilo and other Countrywide directors liable for losses tied to the U.S. economic downturn starting in 2007 and subprime mortgages.
Charlotte, North Carolina-based Bank of America acquired Countrywide, once the U.S.’s largest mortgage lender, for about $4 billion in 2008. The bank agreed in 2010 to a $600 million settlement that resolved investors’ securities-fraud claims over the mortgage unit’s activities.
Mozilo agreed to a record $67.5 million settlement that same year to resolve U.S. Securities and Exchange Commission claims that he misled investors. The SEC accused Mozilo and other Countrywide officials of publicly reassuring investors about the quality of Countrywide’s loans while knowing the lender fueled its growth with lax underwriting guidelines and a portfolio filled with risky subprime loans.
The Delaware Supreme Court case is Arkansas Teacher Retirement System v. Countrywide Financial Corp., No. 14, 2013, Supreme Court of Delaware (Dover).
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