COSTA MESA, Calif. - - Federal regulators accused Countrywide Financial Corp. co-founder Angelo R. Mozilo of fraud and insider trading Thursday, 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, Countrywide's former president, and Eric Sieracki, its former chief financial officer, of fraud.
Mozilo founded Countrywide in 1969 and was its chief executive until Bank of America Corp. purchased it last year as the home lender's financial condition deteriorated. He is the most prominent person to face charges in the housing meltdown.
"Angelo Mozilo had access to detailed and alarming information about Countrywide's operations," said Rosalind Tyson, director of the SEC's Los Angeles regional office. "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."
The SEC's lawsuit says Mozilo, 70, and Countrywide's chief risk officer warned Sambol and Sieracki that the deteriorating quality of Countrywide's loans ultimately 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 suit says.
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 was also scrutinizing Mozilo's sale of hundreds of millions of dollars in stock in 2006 and 2007 as defaults mounted on the high-risk loans that Countrywide increasingly had specialized in.
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."
Lawyers for Sambol and Sieracki denied all charges against the men.
