The SEC has settled with prior Countrywide Financial CEO Angelo Mozilo for $22.5 million in penalties to settle claims that he and two other former Countrywide executives misled investors about the subprime mortgage crisis. The settlement permanently prohibits Mozilo serving as an officer or director of a publicly traded company.
Mozilo’s financial penalty is the largest ever paid by a public company’s senior executive in an SEC settlement. Mozilo also agreed to $45 million in disgorgement of unjust profits to settle, totaling $67.5 million that will be returned to harmed investors.
The SEC alleged that Mozilo and Countrywide 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.
This is yet another example of the major fraud that occurred during the real estate boom with mortgage-back securities. There were numerous mortgages offered by Countrywide to borrowers in Florida during the boom.