The Securities and Exchange Commission is going after its highest-profile target yet as it sorts through the wreckage of the subprime mortgage meltdown: Former chief executive officer of Countrywide Financial Corp., Angelo Mozilo
The agency announced charges against Mozilo this afternoon for securities fraud and insider trading. It also brought securities fraud charges against former chief operating officer and president David Sambol, and former chief financial officer Eric Sieracki. The civil complaint was filed in the U.S. District Court for the Central District of California.
In a prepared statement, Mozilo’s lawyer, David Siegel, a partner at Irell & Manella in Los Angeles and head of the firm’s securities litigation practice, called the SEC’s allegations “baseless,” stating, “Mr. Mozillo acted properly and lawfully at all times as the CEO of Countrywide.”
Under Mozilo’s leadership, Countrywide, which was based in Calabasas, Calif., became a major player in the subprime mortgage market. As the market began to unravel, so did the company, which is itself the subject of several lawsuits over its lending practices. Bank of America bought Countrywide last July.
The SEC accuses the three senior executives of misleading the market by falsely assuring investors that Countrywide was primarily a prime quality mortgage lender. It alleges that they wrote excessively risky loans that they knew mortgage holders wouldn’t be able to pay. The SEC slapped Mozilo with the additional insider trading allegations because it says he reaped nearly $140 million in profits for selling Countrywide stock on non-public information.
Chairman Mary Schapiro, who took the helm of the SEC in January, has made strengthening enforcement the agency’s top priority. Under her leadership, the commission has loudly trumpeted new initiatives to ferret out corporate wrongdoing and it has rolled back Bush-era policies that enforcement lawyers said hindered their investigations. The charges against the Countrywide executives clearly bolster that pro-enforcement message.
During a 4 o’clock press conference today, SEC enforcement chief Robert Khuzami— appointed by Schapiro in February-- said the charges against the executives should serve as “a reminder and a warning” to other corporate executives that “they need to adequately disclose information.”
David Martin, co-head of Covington & Burling’s corporate and securities practices, and a former director of the SEC’s Division of Corporation Finance, observed, “The SEC is keying off the statements of its new chairman and enforcement director. ...They’re really making an effort to bring smart cases, that is, ones that have strategic value.”
Orrick, Herrington & Sutcliffe partner Walter Brown is representing Sambol. Brown, who is based in the firm’s San Francisco office, chairs Orrick’s white-collar criminal defense and corporate investigations group. He did not respond to a call for comment.
Nicolas Morgan, a litigation partner in DLA Piper’s Los Angeles office and a former SEC Enforcement Division lawyer, is representing Sieracki. In an e-mailed statement, Morgan maintained his client’s innocence.
“Mr. Sieracki lost money just like all other investors in Countrywide stock when the credit markets seized up and real estate values declined,” said Morgan. “Mr. Sieracki unequivocally demonstrated his belief in the accuracy of Countrywide’s disclosures with his own money, and ultimately lost millions.”