Mozilo charged with civil fraud

As was anticipated for months, the SEC today charged Angelo Mozilo, former CEO of the mortgage giant Countrywide, with civil fraud. The charges will play out as a civil lawsuit again Mozilo and two other former executives at the company. Details of the case should become clearer after SEC officials hold a press conference today.

From Gina Keating at Reuters:

The case against Mozilo, long one of the most prominent officials in the U.S. mortgage lending industry, constitutes the highest-profile civil case stemming from the U.S. housing collapse.

Mozilo co-founded Countrywide in 1969 and publicly expressed strong confidence in its prospects and survival even as problems began to mount. Bank of America Corp bought the company for $2.5 billion last July 1.

Keating also reports that federal prosecutors are still trying to develop a criminal case against Mozilo.

*Mozilo also made Time magazine's list of 25 people most to blame for the financial crisis.

Former KB Home CEO charged with fraud

As the SEC mulls civil charges against former Countrywide CEO Angelo Mozilo (see below), a federal grand jury today handed down a 20-count indictment against former KB Home CEO Bruce Karatz for criminal fraud.

Here's part of the press release from the Department of Justice:

A former CEO and chairman of the board of KB Home was named today in a 20-count indictment that charges him in a scheme to defraud KB and its shareholders by awarding himself and other KB executives millions of dollars in undisclosed stock-based compensation in connection with the backdating of stock options over a seven-year period.

Bruce E. Karatz, 63, of Bel Air Estates, was charged with seven counts of mail fraud, five counts of wire, three counts of securities fraud, four counts of making false statements in reports filed with the Securities and Exchange Commission, and one count of lying to KB’s accountants.

This scheme alleged in the indictment involves Karatz’s use of hindsight pricing to inflate the value of stock options granted to him and other KB executives, as well as Karatz’s ongoing concealment of this practice from KB’s board of directors, Compensation Committee and shareholders. Furthermore, the indictment alleges, when an internal investigation into stock-option backdating was initiated at KB in May 2006, Karatz falsely denied his orchestration of the stock-option backdating scheme and caused a false report of KB’s historical option-granting practices to be submitted to KB’s Audit Committee and outside auditor, which impeded the timely and accurate disclosure of this matter in filings with the Securities and Exchange Commission.

Former Countrywide CEO could face fraud charges

The Securities and Exchange Commission is likely to recommend former Countrywide CEO Angelo Mozilo and at least two other company executives face fraud charges for misleading shareholders about the risks associated with its aggressive subprime lending practices, according to a story in today's Los Angeles Daily Journal by Gabe Friedman. The charges would be civil rather than criminal.

From the story:

The charges would be the most significant attempt at an enforcement action by government lawyers against high-ranking executives involved in Southern California's massive mortgage lending meltdown that presaged the nation's current economic crisis.

Once the nation's largest home lender, Countrywide has become synonymous with exotic lending practices that ultimately became unsustainable. Countrywide, now part of Bank of America, shifted away from traditional fixed-rate mortgages toward riskier loans such as subprime and adjustable rate mortgages in recent years. Investigators are paying particular attention to a loan program in which Countrywide allowed borrowers to pay less than the minimum monthly interest due on their loans, the sources said.

About a month ago, lawyers for Mozilo and his successor David Sambol both received phone calls offering a final opportunity to make their case with SEC staff who are investigating the matter. The offers, informally known as "pre-Wells" notices, can be precursors to actual "Wells notices," formal written letters from the SEC notifying individuals that formal charges will be recommended to the Commission. A final decision on whether to file charges could take at least two months, the sources said, and the executives' lawyers could have another opportunity to meet with the commissioners before the decision is made.

DJ stories are behind a steep pay wall, thus no link to the full story.