The Securities and Exchange Commission, the US equivalent of the FSA, has charged Mozilo and two other former executives for deliberately misleading investors about the “significant” credit risks being taken in the sub-prime mortgage market.
The SEC says that Mozilo, along with former chief operating officer and president David Sambol and former chief financial officer Eric Sieracki, misled the market by falsely assuring investors that Countrywide was primarily a prime quality mortgage lender that had avoided the excesses of its competitors.
The SEC is alleging that from 2005 through 2007, Countrywide expanded its loan book considerably and was writing riskier and riskier loans. The regulator says Countrywide was required to disclose these trends to its investors, but failed to do so.
In July 2008, the mortgage originator was bailed out Bank of America for $2.5bn (£1.6bn).
SEC division of enforcement director Robert Khuzami says: “This is the tale of two companies. Countrywide portrayed itself as underwriting mainly prime quality mortgages using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk.”
Khuzam says Mozilo privately described one Countrywide product as ‘toxic,’ and said another’s performance was so uncertain that Countrywide was ‘flying blind.’
SEC Los Angeles regional office director Rosalind Tyson says: “Angelo Mozilo had access to detailed and alarming information about Countrywide’s operations. He knew that Countrywide was gambling with increasingly risky mortgages and he kept those details from investors while he was actively taking his own chips off the table.”