Just four days before Angelo Mozilo’s securities fraud and insider trading trial was to begin in Los Angeles, the former CEO of now-defunct Countrywide, settled the SEC’s claims against him for 67.5 millions dollars, resulting in the first personal punishment for a prominent executive who engaged in reckless and grossly negligent behavior during the subprime mortgage boom and bust. Mozilo raked in hundreds of millions of dollars in ill-gotten gains during his company’s foray into the subprime mortgage markets.
The settlement consists of 45 million to disgorge ill-gotten profits and 22.5 million as a penalty. Despite the hefty sound of the fine, the total settlement represents a drop in the bucket of what some have deemed obscene profits earned by Mozilo during 2000 to 2008. Countrywide’s bread and butter during the subprime boom was the incredibly risky zero-down, negative amortization, adjustable rate mortgages. Mozilo earned 500 million during this 8 year period. Amazingly, of the 67.5 million penalty, Mozilo will only be responsible for paying the 22.5 million in ill-gotten profits. Insurance and Bank of America (successor to Countrywide) will pay the remaining 45 million, based on various indemnification agreements. So, at bottom, Mozilo received more than $500 million in compensation and bonuses while driving Countrywide into the ground and defrauding shareholders, yet will only be forced to disgorge 22.5 million of his personal fortune, and agreeing to a ban from ever serving again as a corporate executive. A small price to pay for recklessly leading Countrywide into bankruptcy.
The record-setting default rates for these terrible mortgage products caused not only the demise of Countrywide, but contributed significantly to the near collapse of U.S. financial markets. Mozilo himself described these loan products as, “poison” and “toxic” in emails to other Countrywide execs in 2006, signaling that he could readily foresee the collapse of the company that he was leading, but Mozilo chose to continue to enrich himself by defrauding investors and shareholders recklessly.
Bank of America eventually acquired Countrywide in 2008 in a fire sale.