Mozilo’s stock trades questioned
Federal regulators are being urged to investigate stock trading by Countrywide Financial Inc. Chief Executive Angelo Mozilo after disclosures that he took steps to ramp up his sales before the company’s stock went into a tailspin.
“While Countrywide shareholders have faced massive losses, Mr. Mozilo has been stuffing his pockets,” North Carolina Treasurer Richard Moore said in a statement Thursday.
Moore, who oversees state pension funds owning $9.6 million in Countrywide stock, sent a letter to the Securities and Exchange Commission on Monday after receiving what he described as a polite but inadequate response from Countrywide’s board to questions about Mozilo’s stock trading.
An aide said Moore asked the SEC to examine Mozilo’s trading in response to a Sept. 29 story in the Los Angeles Times.
The paper reported that Mozilo, 68, adopted a stock trading plan on Oct. 27, 2006, that allowed him to sell 350,000 shares a month. He filed another plan Dec. 12 and then revised it Feb. 2 -- when shares of Calabasas-based Countrywide reached an all-time high of $45.03.
The changes enabled Mozilo to increase his sales to 580,000 shares a month, allowing him to unload hundreds of thousands of additional shares before the stock plunged this spring and summer.
Countrywide shares fell 52 cents to $18.28 on Thursday.
“With Mr. Mozilo still in the CEO chair and with deafening silence coming from Countrywide to its investors, the SEC needs to take a hard look at this situation,” Moore said in his statement.
Countrywide refused to answer questions about whether it was being investigated by the SEC or the Justice Department.
“As a matter of policy, Countrywide does not comment on communications with regulators,” the company said in a statement.
The company, however, has previously said that Mozilo did nothing wrong. The founder of the nation’s largest mortgage lender has sold more than $141 million in Countrywide stock over the last year, including $3.8 million in sales during the last week.
The SEC refused to say whether it would respond to the letter or if it was investigating Countrywide.
“We can’t comment on correspondence nor on the existence or nonexistence of investigations,” SEC spokesman John Nester said. “But we are actively focused on these plans and whether they are being abused.”
Like many other executives, Mozilo exercises his company-granted stock options and then sells the shares under trading plans. These plans are aimed at sheltering executives from insider trading allegations by setting up a schedule for the purchase or sale of their company shares.
Securities and corporate governance experts say most executives set up these plans and stick to them. Mozilo’s trading stands out, they say, because he adopted a new trading plan about seven weeks after the Oct. 27 plan. He then revised the Dec. 12 plan about seven weeks later.
The changes were made as Countrywide and other mortgage lenders were being pressured by the slumping housing market and rising defaults.
Countrywide executives have defended Mozilo, saying he revised his stock trading on the recommendation of his financial advisor because of changes being made to his compensation plan.
Moore’s demand for a probe was first reported by the New York Times on Thursday.
This year, SEC enforcement officials said they were beginning to look more closely at the use of trading plans, called 10b5-1 plans after the securities code section that defines them.
In March, a Stanford University professor published a study that indicated executives were profiting more on their so-called “programmed” trades than mere chance could warrant. The study didn’t spell out how the plans could be manipulated and the SEC has declined to specify the type of trading that it considers problematic.
In the wake of that study and comments from regulators, action by the SEC against an executive would not come as a surprise, securities attorney Stanley Yorsz said.
“I’ve been waiting for the other shoe to drop and for the SEC to come down hard on somebody that they felt was abusing a 10b5-1 plan,” said Yorsz, of Buchanan Ingersoll & Rooney in Washington.
The law is not clear in explaining how long the plans need to be set up before they’re revised nor how regularly executives must trade to remain under the shelter of the 10b5-1 umbrella, Yorsz said. Securities attorneys agree, however, that the more regular and long-term the trading, the better protection the plans provide.
“A lot of us are waiting to see whether the SEC will come out with perhaps more stringent regulations about when you can terminate or modify the plans,” Yorsz said. “It wouldn’t surprise me if they looked at [Countrywide’s trading] long and hard given the current environment.”
Separately, Countrywide on Thursday reported a continuing deterioration in its loan portfolio. The company said loan production was down 44% in September, while pending foreclosures have more than doubled from year-earlier levels, reaching 1.27% of unpaid principal balances from 0.51% in 2006.
Delinquencies jumped 45%, reaching 5.85% of customer loan balances.
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