ON June 27, 2006, Countrywide Financial, the nationâ??s largest mortgage lender, was about to close its books on a record-breaking six-month run. The housing market was on fire and Countrywideâ??s earnings were soaring. Despite all the euphoria inside the company, some executives noticed that Angelo R. Mozilo, the companyâ??s brash and imperious chief executive, seemed subdued.
Angelo R. Mozilo in March 2008, when he testified before the House Committee on Oversight and Government Reform.
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Angelo R. Mozilo spoke at a Denver event in 2006. He defended Countrywide, though e-mail messages show his doubts.
At a town hall meeting that day with 110 of the companyâ??s highest-ranking executives in Calabasas, Calif., Mr. Mozilo sat alone on a stage, fielding questions and offering rosy predictions about his companyâ??s prospects. But then he struck a sober note in response to a question from one of his colleagues.
The questioner wanted to know what, if anything, worried Mr. Mozilo, according to a participant.
â??I wake up every day frightened that something is going to happen to Countrywide,â? Mr. Mozilo said.
A year and a half later, that day arrived. In January 2008, Countrywide, the company he had built from a two-man mortgage operation into a lending behemoth, had to sell itself to Bank of America at a bargain price because it was being smothered by losses tied to a mountain of sketchy loans.
Yet almost until the moment Countrywide was taken over, Mr. Mozilo was publicly buoyant about its ability to ride out the mortgage crisis. Privately, however, he occasionally offered a gloomier assessment of Countrywideâ??s prospects and practices, according to e-mail and interviews.
What Mr. Mozilo, now 71, knew about Countrywideâ??s problems, and precisely when he knew it, was what eventually led the Securities and Exchange Commission to file civil securities fraud charges against him last year. And on Friday, in the Los Angeles courtroom of John F. Walter, a federal District Court judge, representatives for Mr. Mozilo and for two of his top lieutenants â?? David Sambol, Countrywideâ??s former president, and Eric Sieracki, the companyâ??s former chief financial officer â?? settled those charges.
As part of the settlement, Mr. Mozilo and his co-defendants didnâ??t admit to any wrongdoing. But Mr. Mozilo agreed to pay $67.5 million in a penalty and reparations to investors and is permanently banned from serving as an officer or a director of a public company. Mr. Sambol is paying $5.52 million in a penalty and reparations and agreed to a three-year ban from serving as an officer or director of a public company. Mr. Sieracki agreed to pay a $130,000 penalty.
The settlement is a signal event in the credit crisis and its aftermath, including the foreclosure debacle that is now rattling the mortgage market and upending the lives of average homeowners. Although Goldman Sachs settled securities fraud charges earlier this year, Mr. Mozilo is the first prominent chief executive to be held personally accountable for questionable business practices that contributed to the housing bubble, the dizzying financial machinations that surrounded it, and a ruinous lending spree that ultimately threatened to undermine the nationâ??s economy.
Mr. Mozilo and his two former colleagues were accused of misrepresenting the companyâ??s declining lending standards during 2006 and 2007 and portraying themselves publicly as underwriters of high-quality mortgages even as they learned that the companyâ??s loans were becoming increasingly risky.
The government also contended that Mr. Mozilo and Mr. Sambol improperly profited on inside information about the companyâ??s problematic loans when they sold Countrywide shares. From May 2005 to the end of 2007, Mr. Mozilo generated $260 million from his stock sales, while Mr. Sambolâ??s sales produced $40 million, the government says.
Lawyers for Mr. Mozilo declined to comment. Mr. Sambolâ??s lawyer said his client had â??put the matter behind him for the benefit of his family and loved ones.â? Mr. Sierackiâ??s lawyer noted that the S.E.C. had decided not to pursue fraud charges against his client and that his client had not been barred from serving at a public company. Bank of America is paying Mr. Moziloâ??s legal bills. Countrywide is paying $5 million toward Mr. Sambolâ??s repayment to investors and $20 million of Mr. Moziloâ??s reparations.
The S.E.C.â??s legal team, led by John M. McCoy III, associate regional director of the enforcement division, said the settlement amounted to a hard-won victory.
In a statement on Friday, Mr. McCoy said: â??This settlement will provide affected shareholders significant financial relief, and reinforces the message that corporate officers have a personal responsibility to provide investors with an accurate and complete picture of known risks and uncertainties facing a company.â?
Battered by widespread criticism that it failed to corral scam artists like Bernard L. Madoff and to effectively police Wall Street as a whole during the years leading up to the credit crisis, the S.E.C. may now regain some stature as a successful litigator and investor advocate from its settlement with Mr. Mozilo.
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