With a trail of damaging e-mails and big-money stock sales, the federal government’s fraud case against Angelo Mozilo and two other former Countrywide Financial Corp. executives appears to have plenty of ammunition.

The trio knew the mortgage lender was taking heavy risks but kept quiet about it, the civil lawsuit contends. It cites internal company e-mails in which Mozilo derided some of Countrywide’s loans as “toxic” and conceded the company was “flying blind” about certain risks it was taking.

But if there is a chink in the Securities and Exchange Commission’s case, it may also lie in statements made by Mozilo and other Countrywide executives, legal experts say.

Defense attorneys are expected to argue that the executives fully disclosed the company’s strategy and risks in public statements, conference calls with stock analysts and investor forums at the company’s Calabasas headquarters, the experts said.


“I think it’s going to be a tough case for the government,” said Thomas A. Zaccaro, former head of litigation for the SEC’s enforcement division in Los Angeles. Zaccaro is now with Paul, Hastings, Janofsky & Walker, which represents some former Countrywide executives whom the government has not accused of wrongdoing.

“Looking at the [SEC] complaint, and given the detailed disclosures that Countrywide did make, it will be a challenge to prove that the company should have foreseen the complete market meltdown in 2007,” Zaccaro said. He called it “a crisis that no one -- not the Fed, not the SEC, not the big Wall Street investment banks -- saw coming.”

Whether the disclosures by Mozilo and associates in such settings were adequate is in dispute, and the company’s near-collapse before its takeover last year by Bank of America Corp. suggests at least a badly miscalculated business strategy. But lawyers who handle securities fraud cases say the frequent investor briefings will provide the defendants some cover as they seek to rebut the SEC suit in U.S. District Court in Los Angeles and ward off potential criminal indictments.

In one example, former Countrywide President David Sambol, a defendant in the SEC suit, acknowledged during a May 2005 investor forum that the share of traditional mortgages had shrunk to just a third of its loan output, from 67% three years earlier. That, Sambol said, reflected consumers’ preferences for the riskier home loans that might not require full documentation of the borrower’s assets and income.


“That is part of our value proposition . . . that if a consumer, you know, genuinely qualifies for a home loan anywhere else in the U.S., they will qualify at Countrywide, and if that customer has a product preference, that product will reside on our product menu,” Sambol said.

Those statements -- saying in effect that if you can get a loan somewhere else, you could get it at Countrywide -- could be used to counter the SEC’s central premise that the executives kept investors in the dark about the risks the firm was running as it matched every type of reckless mortgage its rivals concocted during the real estate bubble.

There is evidence as well that people attending the forum understood the increased risks. One day after the conference, Jefferies & Co. analyst Charlotte A. Chamberlain wrote that Countrywide’s “commitment not to turn down any mortgage borrower that was approved by any other lender was a bit jolting.”

Sambol’s defense attorney, Walter F. Brown Jr. of San Francisco, contends that the statements made by Countrywide executives show there was never any attempt to mislead investors.


“If you wanted to hide that stuff, you wouldn’t be out there in the conference call saying, ‘We’ve got the broadest loan offerings in the history of mankind,’ ” he said. He also asserted that the e-mails cited by the SEC were taken out of context and “were part of an appropriate and robust internal debate.”

Lawyers for Mozilo and the third defendant, former Countrywide Chief Financial Officer Eric Sieracki, did not respond to requests for comment.

They have previously said that their clients were innocent of any wrongdoing.

When the lawsuit was filed, Mozilo attorney David Siegel said the complaint “does not tell the whole story of either internal communications or the public disclosures.” The SEC, however, is expected to argue that the executives’ statements were too disparate to satisfy the requirements of securities law.


A series of separate disclosures about various risk factors is no substitute for summing things up in regular SEC filings so that investors can see the company through the eyes of management, as full disclosure requires, said John M. McCoy III, the commission’s chief trial lawyer for the Pacific Region.

“It’s not enough to say if you would have looked hard enough you could have pieced everything together,” McCoy said.

The SEC accuses the three of omitting sufficient risk warnings from Countrywide’s quarterly and annual reports. That is a stumbling block for the defendants, because their most detailed disclosures about the loans were made in the analyst conferences and in SEC filings describing mortgage-backed securities that were carved out of the loans, not in Countrywide’s own filings.

“Accurate disclosures to a select group of investors and analysts in meetings cannot overcome falsity in a quarterly report” but could be used to argue that the defendants had no intent to defraud anyone, said Jan Handzlik, a white-collar defense attorney in Los Angeles.


The SEC suit also accuses Mozilo of insider trading. From May 2005 through 2007, Mozilo exercised stock options and sold the underlying shares for proceeds of at least $260 million.

Mozilo had set up four programs to regularly sell shares of Countrywide stock in the final three months of 2006. Such stock sales are normally established to help shield executives from accusations of insider trading. In Mozilo’s case, the SEC said, the programs were used to ramp up stock sales at a time when Mozilo had inside information about the damage that risky loans were causing at the company.

A statement from his lawyer called the transactions “entirely lawful,” saying the stock-sale plans “were reviewed and approved by responsible professionals.”