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Labor & Employment Law

: The Law Planet Blog

Countrywide Executives must face the music for deception and fraud

By Dobin & Jenks

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Countrywide executives must face the music for deception and fraud as the Securities and Exchange Commission (SEC) has brought charges against the former Chief Executive Officer (CEO) Angelo Mozilo and two executives for allegedly hiding financial difficulties which led to the company's collapse from the subprime mortgage crisis. In 2007, Countrywide Financial was the United States' largest mortgage lender. When it collapsed in 2008, the Bank of America acquired Countrywide for more than $4 billion. This case is important as the public attempts to assign blame for the subprime mortgage collapse.

Many corporate executives use a common defense against financial malfeasance, that their subordinate employees hid important information. The SEC has collected top Countrywide executive e-mails (sent while the housing market was starting to decline) that portray a rosy public picture, with negative private ruminations concerning an impending collapse. These executives described the mortgage loans as "toxic" in private conversations. Ex-CEO Mozilo used terms like "flying blind" to describe his inability to assess the viability of these subprime loans.

Actions, such as ex-CEO Mozilo's sale of $260 million worth of stock, have led to insider trading charges that these executives failed to disclose important information publicly. Evidence is growing that ex-CEO Mozilo was quite engaged in all of the intricate details of homeowner loans. The Bloomberg News Service has reported extensively on these SEC lawsuits.

Still, ex-CEO Mozilo and his co-defendants are adamant in defending themselves, denying the SEC's claims that they deceived investors. These defendants argue that "no one could have predicted the severity and force of the housing market downturn." The Countrywide executives claim that regulators "cherry-picked" quotes which have been taken out-of-context.

Full post as published by The Law Planet Blog on June 10, 2009 (boomark / email).