Mozilo to Settle SEC Fraud Claims for $67.5 Million
Former Countrywide Financial Corp. Chief Executive Officer Angelo Mozilo agreed to a record $67.5 million settlement to resolve U.S. Securities and Exchange Commission claims that he misled investors.
Mozilo, 71, will pay a $22.5 million penalty and disgorge $45 million in gains from the sale of shares at inflated prices under the terms of the settlement read yesterday at a hearing in federal court in Los Angeles. Former Chief Financial Officer Eric Sieracki and former Chief Operating Officer David Sambol also reached settlements. None of the men, who had been scheduled to go on trial Oct. 19, admitted wrongdoing.
The SEC sued the three in June 2009, saying they publicly reassured investors about the quality of Countrywide’s loans while knowing that the mortgage lender was fueling its growth at least since the beginning of 2005 by letting its underwriting guidelines deteriorate and originating an increasing number of risky subprime loans.
Mozilo’s penalty is the biggest ever to be paid by a senior executive of a publicly traded company in an SEC settlement, the agency said in a statement. He’s also barred from serving as an officer or director of a public company, according to the SEC.
“Mozilo’s record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite, a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model,” Robert Khuzami, director of the SEC’s enforcement division, said in the statement.
The SEC said Mozilo sold $140 million in Countrywide shares from November 2006 through October 2007 at an inflated price because he hadn’t disclosed the increasing risk he knew the lender faced from defaulting mortgages.
Mozilo is the most prominent executive targeted by U.S. regulators examining the subprime mortgage crisis. He co-founded Countrywide in 1969 and built it into the nation’s biggest mortgage lender. Mounting loan defaults slashed the company’s stock price, prompting its sale to Bank of America Corp. in 2008.
David Siegel, Mozilo’s lawyer, declined to comment after the hearing, saying the agreement speaks for itself.
Sambol agreed to pay a $520,000 penalty and $5 million in disgorgement, and Sieracki agreed to pay a $130,000 penalty. U.S. District Judge John F. Walter said the settlements were “fair, reasonable, and in the public interest.”
“Mr. Sambol has agreed to settle the SEC lawsuit and put the matter behind him for the benefit of his family and loved ones,” Sambol’s lawyer, Walter Brown, said in a statement.
Bank of America said in a statement that the events covered in the suit occurred before the takeover and that neither it nor Countrywide was sued.
“Countrywide Financial Corporation will advance funds to Mozilo and Sambol as required by the indemnification provisions of its corporate bylaws in these circumstances,” according to the bank’s statement. “Those funds will be used by the defendants to pay the non-penalty amounts ordered by the Court.”
The penalty and disgorgement payments will go to the settlement fund for the Countrywide securities class action that Bank of America agreed to settle in April for $600 million.
“The SEC decided not to pursue any of the fraud or aiding and abetting fraud claims alleged in its complaint against Mr. Sieracki, and decided not to pursue its request that Mr. Sieracki be barred in the future from serving as a director or officer of a public company,” Sieracki’s lawyer, Shirli Fabbri Weiss, said in a statement.
The Federal Bureau of Investigation started investigating Countrywide officials for possible securities fraud in 2008. Thom Mrozek, a spokesman for the U.S. Attorney’s Office in Los Angeles, declined to comment on the investigation.
The case is SEC v. Mozilo, 09-3994, U.S. District Court, Central District of California (Los Angeles.)
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