SEC targets Countrywide execs

COSTA MESA, Calif. — Federal regulators Thursday accused Countrywide Financial co-founder Angelo Mozilo of fraud and insider trading, saying he and two other executives failed to warn shareholders of the real risk of the mortgages the company was making at the height of the housing boom.

A civil lawsuit filed by the Securities and Exchange Commission in federal court also accuses David Sambol, 49, Countrywide's former president, and Eric Sieracki, 52, its former chief financial officer, of fraud.

Mozilo founded Countrywide in 1969 and was its chief executive until Bank of America purchased it last year as the home lender's financial condition deteriorated.

Countrywide was a major player in the subprime mortgage market, the collapse of which in 2007 touched off the financial crisis that has gripped the U.S. and global economies.

Mozilo, 70, is highest-profile individual to face formal charges from the federal government in the crisis's aftermath.

Mozilo, Sambol and Sieracki "deliberately misled" Countrywide shareholders, SEC enforcement director Robert Khuzami said at a news conference in Washington, D.C.

While they painted a picture of robust performance, Countrywide was "buckling under the weight" of soured mortgage loans, he added, and Mozilo "was actively taking his own chips off the table" by selling his shares to reap nearly $140 million in illicit profits.

The SEC is seeking injunctions and unspecified civil fines against Mozilo, Sambol and Sieracki and wants them to be barred from serving as officers or directors of any public company. The agency also is seeking unspecified restitution of allegedly ill-gotten profits from Mozilo and Sambol.

The SEC's lawsuit says Mozilo and Countrywide's chief risk officer warned Sambol and Sieracki that the deteriorating quality of Countrywide's loans would make it impossible to sell them on the secondary market to be carved up into debt securities:

"Thus, each of the defendants was aware, but failed to disclose, that Countrywide's current business model was unsustainable."

The agency had been investigating whether Mozilo and others failed to inform shareholders just how lax lending standards became at the mortgage goliath as the housing boom neared its end.

The SEC's scrutiny of Mozilo's stock sales began in the fall of 2007 with an informal inquiry.

Lawyers for the defendants condemned the lawsuit as unfounded and said they would fight it in court.

"Mr. Mozilo acted properly and lawfully at all times as the CEO of Countrywide," David Siegel, a lawyer for Mozilo, said in an e-mailed statement, denying that the executive "knew about some undisclosed risk to certain loans made by Countrywide."

"The complaint does not tell the whole story of either internal communications or the public disclosures," said Shirli Weiss, an attorney for Sieracki. "The mix and risks of Countrywide's loan portfolio and its underwriting standards were well disclosed to and understood by the marketplace."

Walter Brown, a lawyer for Sambol, issued a statement saying Countrywide had made "detailed credit-risk disclosures."

The filing of the agency's lawsuit is a striking turn for Mozilo, the man who 40 years ago co-founded what grew into the nation's largest mortgage lender. He moved the company in 1969 from New York to the housing hotbed of suburban Los Angeles, guiding Countrywide through numerous boom-and-bust housing cycles.

After the mortgage crisis hit, Calabasas, Calif.-based Countrywide was forced to cut thousands of jobs and saw its shares plummet. Its downward spiral ended in it being bought by titan Bank of America in July 2008 for about $2.5 billion. Countrywide itself is the target of multiple lawsuits related to the mortgage meltdown.

Information from The Associated Press is included in this report.