Countrywide Executives must face the music for deception and fraud
Countrywide executives must face the music for deception and fraud as the Securities and Exchange Commission (SEC) has brought charges against the former Chief Executive Officer (CEO) Angelo Mozilo and two executives for allegedly hiding financial difficulties which led to the company's collapse from the subprime mortgage crisis. In 2007, Countrywide Financial was the United States' largest mortgage lender. When it collapsed in 2008, the Bank of America acquired Countrywide for more than $4 billion. This case is important as the public attempts to assign blame for the subprime mortgage collapse.
Many corporate executives use a common defense against financial malfeasance, that their subordinate employees hid important information. The SEC has collected top Countrywide executive e-mails (sent while the housing market was starting to decline) that portray a rosy public picture, with negative private ruminations concerning an impending collapse. These executives described the mortgage loans as "toxic" in private conversations. Ex-CEO Mozilo used terms like "flying blind" to describe his inability to assess the viability of these subprime loans.
Actions, such as ex-CEO Mozilo's sale of $260 million worth of stock, have led to insider trading charges that these executives failed to disclose important information publicly. Evidence is growing that ex-CEO Mozilo was quite engaged in all of the intricate details of homeowner loans. The Bloomberg News Service has reported extensively on these SEC lawsuits.
Still, ex-CEO Mozilo and his co-defendants are adamant in defending themselves, denying the SEC's claims that they deceived investors. These defendants argue that "no one could have predicted the severity and force of the housing market downturn." The Countrywide executives claim that regulators "cherry-picked" quotes which have been taken out-of-context.
Bankers have a tradition of fastidious conservatism, which carefully considers all important details of lender creditworthiness. It is quite a leap of faith to argue that the bankers were not involved and cognizant of the most important elements of bank loans - credit ratings and income. For even the novice, the following formula seems accurate: low credit scores + unverifiable income = irresponsible loans. It is difficult to blame lending to homeowners with bad credit scores on lower level employees, because it was such a key element of Countrywide's business model.
People are yearning for justice. If no man is above the law, then even the white collar criminals should be punished for their crimes. Future banking executive behavior hinges on the resolution of this case. The public must retain confidence in the banking system.
Eleven states are also suing Countrywide for fraud. At the present time, Bank of America is responsible for defending the Countrywide executives. When Bank of America bought out Countrywide, it inherited an indemnity clause covering these Countrywide executives for regulatory and legal claims against them.
One of the central questions is "What did these Countrywide executives know, when did they know it and what did they do about it?" Finally, Countrywide executives must face the music for deception for fraud against shareholders; many await the verdict in this important case.
Continue reading more on this case at the Chicago Tribune, National Public Radio (NPR), MSNBC, Bloomberg News, and the Securities Exchange Commission (SEC)
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Posted by: M Ofsak | March 5, 2010 1:39 AM