Angelo R. Mozilo, who as head of home-loan giant Countrywide was at the center of the housing boom and bust, agreed Friday to pay a record fine as part of a $73-million settlement of a government fraud lawsuit over the lender’s near-collapse.
The deal with the Securities and Exchange Commission requires Mozilo, the highest-profile figure to be accused of wrongdoing in the mortgage meltdown, to personally pay a $22.5-million fine. The government said it would be the largest penalty ever paid by a senior executive of a public company in an SEC settlement.
Mozilo, 71, also agreed to pay $45 million in “ill-gotten gains” to former Countrywide Financial Corp. shareholders, who lost billions when the company’s stock price plunged as defaults on home loans surged. But Bank of America Corp., which bought Countrywide in 2008, and Countrywide’s insurers will pay that amount under terms of Mozilo’s employment contract.
Countrywide’s former president, David Sambol, agreed to pay $520,000 in fines and $5 million in restitution. Bank of America will reimburse him for the latter. Eric P. Sieracki, former Countrywide chief financial officer, agreed to pay $130,000 in fines.
The deal allowed Mozilo, Sambol and Sieracki to avoid going to trial next week on allegations that they misled investors about the risky loan portfolio and deteriorating financial condition of the Calabasas company, once the nation’s top originator of home loans.
The sting of the penalty, however, was dramatically reduced because Bank of America and insurance will foot much of the bill, said John Coffee, a securities-law professor at Columbia University.
“Both sides are engaging in the usual game of making this settlement look better than it appears,” he said. “Both sides have an interest in putting the most positive spin on a settlement.”
Mozilo also was barred from ever serving as an officer or director of public companies. Sambol agreed to a three-year prohibition on holding such positions.
The defendants, who were not in court Friday, neither admitted nor denied wrongdoing.
U.S. District Judge John F. Walter approved the settlement in Los Angeles federal court Friday, calling it “fair, adequate, reasonable and in the public interest.”
Mozilo is still the subject of a criminal investigation by the Justice Department, according to people with knowledge of the probe who are not authorized to speak publicly. The settlement of the SEC civil case, however, deprives federal prosecutors of the opportunity to see how the testimony and other evidence play out before a jury.
“The defendants, particularly Mozilo, get closure of the SEC case without there being any adverse findings against them,” said Jacob Frenkel, a partner at Shulman Rogers Gandal Pordy & Ecker in Rockville, Md.
The settlement closes a chapter in one of the highest-profile dramas to emerge from the housing-market meltdown.
During his nearly 40 years atop the company, Mozilo built it into the nation’s No. 1 mortgage originator and a highly visible symbol of the nation’s love affair with the housing market.
Known as brash and relentless, the Countrywide chairman and chief executive stood out in the staid and conservative mortgage industry. The son of a Bronx butcher with an up-from-the-bootstraps personal story, the 71-year-old cut a dashing figure with his custom-tailored suits and perpetual tan.
Countrywide specialized for many years in relatively low-risk loans that were insured or guaranteed by government-sponsored agencies. But Countrywide branched out in its later years into subprime and other high-risk mortgages that helped fuel the housing bubble. The company suffered huge losses, including $1.6 billion in the second half of 2007.
The SEC suit, filed against the men in June 2009, alleged that they misrepresented Countrywide’s exposure to risky loans. The defendants contended that they fully disclosed the risks and financial condition of the company to investors.
The agency also accused Mozilo of insider trading, alleging that he sped up his sales of Countrywide stock options to cash out $140 million even as the company’s condition was weakening.
At the heart of the insider-trading allegations was a so-called stock trading plan, a formal document laying out a pre-planned timetable for executives to sell stock. Trading plans came about a decade ago as a way for executives to insulate themselves from allegations that they sold shares based on their inside knowledge of their company’s woes.
But The Times disclosed in 2007 that Mozilo repeatedly changed his trading plan in late 2006 and early 2007, which allowed him to unload hundreds of thousands of additional shares in advance of Countrywide’s demise.
Mozilo claimed he did nothing wrong and was simply preparing the personal finances of his large family.
In its suit, the SEC was seeking to recover allegedly inflated profits of $141.7 million from Mozilo and $18.3million from Sambol.
“Mozilo’s record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite — a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model,” said Robert Khuzami, the SEC enforcement chief.
All of the $73-million settlement will go to former Countrywide shareholders, including $25 million that Bank of America has agreed to pay as part of a $600-million settlement with investors.
Times staff writer Stuart Pfeifer contributed to this report.