Angelo Mozilo, the former chief executive of mortgage lender Countrywide Financial, has agreed to pay $22.5 million to the Securities and Exchange Commission, the largest-ever financial penalty for a public company senior executive.
Mozilo also agreed to $45 million in disgorgement of ill-gotten gains to settle the SEC’s disclosure violation and insider trading charges against him, for a total financial settlement of $67.5 million that will be returned to harmed investors.
Former Countrywide chief operating officer David Sambol agreed to a settlement in which he is liable for $5 million in disgorgement and a $520,000 penalty, and a three-year officer and director bar. Former chief financial officer Eric Sieracki agreed to pay a $130,000 penalty and a one-year bar from practicing before the Commission. In settling the SEC’s charges, the former executives neither admit nor deny the allegations against them.
The penalties and disgorgement paid by Sambol and Sieracki will also be returned to harmed investors.
“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 SEC's Division of Enforcement director Robert Khuzami in a statement.
The settlement was approved by the Honorable John F. Walter, United States District Judge for the Central District of California in a court hearing Friday.
The SEC filed charges against Mozilo, Sambol, and Sieracki on June 4, 2009, alleging that they failed to disclose to investors the significant credit risk that Countrywide was taking on as a result of its efforts to build and maintain market share. Investors were misled by representations assuring them that Countrywide was primarily a prime quality mortgage lender that had avoided the excesses of its competitors. In reality, Countrywide was writing increasingly risky loans and its senior executives knew that defaults and delinquencies in its servicing portfolio as well as the loans it packaged and sold as mortgage-backed securities would rise as a result.
The SEC’s complaint further alleged that Mozilo engaged in insider trading in the securities of Countrywide by establishing four 10b5-1 sales plans in October, November, and December 2006 while he was aware of material, non-public information concerning Countrywide’s increasing credit risk and the risk regarding the poor expected performance of Countrywide-originated loans.
In addition to the financial penalties, Mozilo and Sambol consented to the entry of a final judgment that provides for a permanent injunction against violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Mozilo also consented to the entry of a permanent officer and director bar, and Sambol consented to the entry of a three-year bar.
Sieracki agreed to a permanent injunction from further violations of the Securities Act, and consented to a one-year bar under the Commission’s Rule of Practice.