ORANGE COUNTY AND WASHINGTON — Regulators took on the mortgage industry's best-known figure Thursday, accusing former Countrywide Financial Corp. Chief Executive Angelo Mozilo of hiding his alarm about risky loans the company was making at the height of the housing boom while he was reaping nearly $140 million in profits on stock sales.
In a fraud and insider-trading lawsuit against Mozilo, the Securities and Exchange Commission quotes e-mails in which the executive derided certain Countrywide loan products as "toxic" and "poison" more than three years ago -- well before "toxic debt" entered the popular lexicon as the cause of the housing crash and the resulting global financial crisis and deep recession.
"In all my years in the business I have never seen a more toxic product," Mozilo said in an April 2006 message, cited in the suit, about Countrywide's loans requiring no down payments from borrowers with abysmal credit. "Frankly, I consider that product line to be the poison of ours."
But Mozilo never advised shareholders just how lax the nation's No. 1 mortgage lender's standards had become, according to the lawsuit, filed in federal court in Los Angeles.
The suit also accuses David Sambol, Countrywide's former president, and Eric Sieracki, the lender's former chief financial officer, of defrauding Countrywide shareholders.
"In the end, these former Countrywide executives made deliberate decisions to mislead investors," Robert Khuzami, a former federal prosecutor brought in by SEC Chairwoman Mary L. Schapiro in February to toughen the agency's enforcement division, said at a news conference in Washington. "They made investors their last priority."
Lawyers for Mozilo, Sambol and Sieracki vehemently denied wrongdoing by their clients, suggested the e-mails were taken out of context and called the suit a political response to outrage over the government's failure to prevent the mortgage meltdown that began in late 2007 and the economic pain that has followed.
"The lawsuit filed today by the SEC does not reflect a balanced or fair consideration of the facts or the law," David Siegel, a lawyer for Mozilo, said, denying that his client "knew about some undisclosed risk."
Vowing to disprove the allegations in court, Siegel added: "The mix and risks of Countrywide's loan portfolio and its underwriting standards were well disclosed to and understood by the marketplace."
