Prolific US sub-prime lender charged with fraud

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The Independent Online

Angelo Mozilo, founder of Countrywide Financial, which was once the most prolific sub-prime lender in the US, last night became the first big- company chief executive to be charged with fraud over the credit crisis.

Releasing a slew of damaging emails, the Securities and Exchange Commission, Wall Street's regulator, said it was charging him and his two most senior lieutenants with deceiving investors and insider dealing in the company's shares. Mr Mozilo knew as early as 2006 that his company was offering riskier and riskier loans to ever-riskier borrowers, and that over-zealous employees were selling mortgages that breached even the company's own guidelines.

In emails in 2006, Mr Mozilo described many of his company's loans as "toxic" and as "poison" and he said: "We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet... The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales."

Countrywide's loans were packaged into credit derivatives and sold throughout the financial system. When customers defaulted in record numbers, the losses spread across the globe.

"This is the tale of two companies," said Robert Khuzami, director of the SEC's enforcement division. "Countrywide portrayed itself as underwriting mainly prime quality mortgages using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk."

Countrywide's former chief operating officer David Sambol and former chief financial officer Eric Sieracki were also served with civil fraud charges last night. Mr Mozilo is additionally accused of insider trading by selling $140m in Countrywide shares at the end of 2006 and early 2007.

Countrywide, which was founded in California in 1969, collapsed last year and was sold to Bank of America, which has now ditched the name.

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