Former Countrywide Executives Settle Suit
Betting against your company’s stock can be a losing proposition, two former vice presidents at Countrywide Financial Corp. learned Wednesday.
The Securities and Exchange Commission sued the duo in Los Angeles federal court, alleging that they used inside knowledge of an upcoming earnings report to make money when the mortgage company’s stock fell in 2004.
Alan Cao, 37, of Woodland Hills, and Jun Shi, 42, of Moorpark, settled the insider-trading suit by returning their earnings plus interest, and paying a fine equal to their profit, the SEC said. The tab came to about $100,000 for Cao and $40,000 for Shi. The men did not admit to any wrongdoing, and their attorneys declined to comment.
Countrywide issued a news release Oct. 20, 2004, reporting that its third-quarter profit had fallen to 94 cents a share from $1.93 a year earlier. The Calabasas firm also lowered its projections for future earnings, sending its stock down 11.5% on triple the usual trading volume.
SEC attorney Andrew J. Dunbar alleged that by about a week before the news release was issued, Cao, a vice president of financial planning, had learned of the bad tidings.
On Oct. 19, Cao borrowed 15,000 Countrywide shares and quickly sold them, hoping to buy them back cheap after the news was released, the SEC said.
The ploy, known as a short sale, was successful. A few hours after the news release came out, Cao bought 15,000 Countrywide shares to cover the borrowed stock, for a profit of $48,352, according to the suit.
Cao also shared the nonpublic information with Shi, a first vice president of finance, the suit said. Shi converted the news to a double benefit, the SEC said. He sold his holdings of 2,300 Countrywide shares Oct. 14, avoiding losses of $11,567, the agency said, and subsequently engaged in a short-selling transaction that netted him $8,461.
The transactions were clear violations of Countrywide policies and federal law, authorities said. Cao was fired and Shi quit, according to the complaint.
“The company’s policies prohibiting illegal insider trading are strictly enforced,” Countrywide said in a statement Wednesday.
