The last-ditch effort comes three years after the Justice Department abandoned a criminal probe of Mozilo. In 2012, public anger over the lack of prosecutions
stemming from the financial crisis spurred the Obama administration to create a team devoted to investigating fraud in mortgage-backed securities. The group has wrestled at least $20 billion from Wall Street banks using a law with a relatively low threshold for suing and a long period to bring cases.
Relying on the same anti-fraud law, the Financial Institutions Reform, Recovery and Enforcement Act, the U.S. attorney’s office in Los Angeles is preparing to sue Mozilo and as many as 10 other former Countrywide employees, according to two people with knowledge of the matter. The case may be helped along by an imminent U.S. settlement with Bank of America Corp., which acquired Countrywide in 2008. That resolution may come as soon as today with Charlotte, North Carolina-based Bank of America expected to pay as much as $17 billion and to acknowledge improper mortgage practices at Countrywide.
Angelo Mozilo, chief executive officer of Countrywide Financial Corp., testifies at a... Read More
’Record Penalty’
“There is no sound or fair basis, in law or fact, to pursue any claim against Angelo Mozilo,” David Siegel, his lawyer at Irell & Manella LLP in Los Angeles, said yesterday. Mozilo, 75, “stands virtually alone among banking and mortgage executives to actually have been pursued by this government before and already paid a record penalty,” Siegel said.Until now, the harshest penalty imposed on Mozilo has been a $67.5 million accord with the U.S. Securities and Exchange Commission from 2010 to resolve allegations that he misled Countrywide investors. He earned $535 million from 1999 to 2008, according to compensation-research firm Equilar Inc. The size of the sanction in the SEC case, in which Mozilo didn’t admit or deny wrongdoing, compared with his pay has fueled criticism from lawmakers and public-interest groups that executives walked away from the housing bust enriched and mostly unscathed.
Thom Mrozek, a spokesman for the U.S. attorney’s office in Los Angeles, declined to comment on a possible suit against Mozilo.
Month Away
While U.S. prosecutors have notified lawyers that their clients are targets of civil cases, any suit against Mozilo and other former Countrywide executives may be more than a month away, said one of the people, who wasn’t authorized to discuss the case publicly.The Justice Department has been focused on first wrapping up the Bank of America case, people familiar with the matter have said. It stems from how mortgage securities issued by Countrywide and Merrill Lynch & Co., which Bank of America bought in 2009, were marketed to investors in the run-up to the financial crisis.
Mozilo said he has “no regrets” about how he ran Countrywide, according to a June 2011 deposition he gave in a lawsuit between the mortgage lender and bond insurer MBIA Inc.
The financial crisis was a “cataclysmic situation, unprecedented in the history of this country” that Countrywide did not cause, Mozilo said in the deposition. Mozilo, Countrywide’s former chairman and chief executive officer, said he settled the SEC lawsuit to protect his family from negative publicity.
Tanned Visage
Mozilo, known for his tanned visage, became an American success story after co-founding Countrywide in 1969 and building it into the nation’s largest mortgage lender. His fortunes turned in 2007 during a surge in defaults of loans the company made to borrowers with inadequate credit profiles. Countrywide, based in Calabasas, California, reported its first annual loss in more than two decades that year.By March 2008, lawmakers tried to make Mozilo a poster child of Wall Street greed as the U.S. economy slumped. They beckoned him to Washington, where he testified before a combative congressional committee about his pay along with the ousted CEOs of Merrill and Citigroup Inc. (C) U.S. Senator Charles Schumer, a New York Democrat, said in a Bloomberg Television interview two months later that Countrywide “will come to symbolize what went wrong with housing.”
Bank of America, trying to solidify its mortgage business by snatching a stumbling competitor, completed the Countrywide acquisition in July 2008. The purchase turned into an albatross. Bank of America has absorbed almost $55 billion in fines and charges since 2010, mostly attributable to Countrywide.
10 Years
The government’s FIRREA case against Bank of America will follow a $7 billion July accord with Citigroup that relied on the law and a $13 billion agreement reached last year with JPMorgan Chase & Co. The law, approved by Congress in 1989 in response to savings-and-loan scandals, gives prosecutors 10 years to bring cases and has less stringent liability requirements than criminal charges. It allows the government to sue individuals for fraud that affects a federally-insured financial company.U.S. prosecutors dropped a criminal probe of Mozilo in early 2011, a person with knowledge of the matter said at the time. The Citizens for Responsibility and Ethics in Washington, a watchdog group, sued the Justice Department in June to try to obtain its records detailing investigations of Mozilo and Countrywide.
The group faulted the government for failing to prosecute either Mozilo or the company “despite substantial evidence of wrongdoing.”
Mozilo agreed to settle the SEC case in October 2010 by paying a $22.5 million fine and disgorging $45 million of gains from stock sales at what the regulator said were inflated prices. Bank of America covered a portion of his penalties.
The SEC’s lawsuit, filed 16 months earlier, accused Mozilo of reassuring Countrywide investors about the quality of the company’s loans, while knowing that its underwriting standards had deteriorated.
The SEC, which banned Mozilo from serving as an officer or director of a public company, also said he sold Countrywide shares based on inside information.
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