Countrywide figure accused of insider trading

Angelo Mozilo, a friend of high-ranking politicians and the former chief executive of Countrywide Financial, was charged Thursday with insider trading in the latest blow to the firm that had dominated the subprime-mortgage market — a sector whose collapse helped put world financial markets into a tailspin.

Mr. Mozilo, 70, was accused in a lawsuit filed Thursday by the Securities and Exchange Commission of illegally making $140 million by selling off company stock at a time when investors were misled about the overall health of the company.

According to the SEC, Countrywide told investors that it dealt mostly in stable mortgages, to people considered good credit risks, when it actually dealt mainly in risky “subprime” mortgages to people judged to be likelier to default. SEC said the Countrywide executives knew the company’s reliance on the subprime market was a business model likely to fail.

“These trends and these concerns were never revealed to Countrywide investors,” SEC Enforcement Director Robert Khuzami said during a news conference announcing the charges.

Countrywide Financial has ties to prominent lawmakers including Senate Banking, Housing and Urban Affairs Committee Chairman Christopher J. Dodd, Connecticut Democrat, and Senate Budget Committee Chairman Kent Conrad, North Dakota Democrat. It was the nation’s largest mortgage lender and the leader in the subprime market before the housing crash nudged the economy into recession.

In one company e-mail, according to the SEC, Mr. Mozilo wrote that subprime mortgages, while profitable, ultimately would prove “toxic.”

“The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales,” Mr. Mozilo wrote in another internal e-mail.

Mr. Mozilo is the highest-ranking corporate official involved in the nation’s housing crisis to face legal action from U.S. authorities. Former Chief Operating Officer and President David Sambol, 49, and former Chief Financial Officer Eric Sieracki, 52, also were named in the lawsuit and accused of misleading investors.

David Siegel, Mr. Mozilo’s attorney, called the SEC’s accusations “baseless” and said the lawsuit against his client “does not reflect a balanced or fair consideration of the facts or the law.”

“Mr. Mozilo acted properly and lawfully at all times as the CEO of Countrywide,” Mr. Siegel said. “Those sales were entirely lawful, complied with applicable laws and regulations and were made under the terms of a series of written sales plans which were reviewed and approved by responsible professionals.”

As for the SEC’s accusations that Mr. Mozilo knew that some loans were highly risky, Mr. Siegel called them “demonstrably false.”

“The complaint does not tell the whole story of either internal communications or the public disclosures,” he said.

Democrats were roiled a year ago by revelations that Mr. Dodd and Mr. Conrad got mortgages at favorable rates through a “VIP” program dispensed by Countrywide for so-called “friends of Angelo.”

The senators have said they were unaware they were getting preferred treatment. Mr. Dodd has insisted that the questions regarding the two Countrywide loans he received didn’t compromise his ability to lead Congress’ efforts to address the effects of the subprime mortgage meltdown.

“As [Mr. Dodd] has said many times before, he does not know the man and has never known him,” Dodd spokesman Bryan DeAngelis said Thursday. “He truly hopes justice is done in this case.”

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