WRAPUP 1-Mozilo case may center on emails, disclosure-lawyers

LOS ANGELES, June 5 (Reuters) - Angelo Mozilo, charged with masking the extent of potential losses at Countrywide Financial Corp from investors, could not have predicted the economic tsunami that swamped his company and weakened a huge swath of the banking industry, his defense lawyers are likely to argue.

Mozilo, a Bronx butcher's son turned corporate chieftain, is the biggest name yet to be accused of wrongdoing by U.S. investigators probing the subprime mortgage crisis and housing market bust. [ID:nN04252093]

Vilified as the face of America's housing collapse, Mozilo and two other Countrywide executives were accused in a civil lawsuit by U.S. regulators of misleading investors about the deterioration of lender's underwriting.[ID:nN04240360]

"The defense will try to make this about something much greater than Countrywide and argue that Mr Mozilo should not have been responsible for predicting a global economic collapse," said Robert Mintz, a former U.S. prosecutor and head of McCarter & English's government investigations practice.

Mozilo, who built Countrywide into the top U.S.mortgage lender before its collapse and sale to Bank of America (BAC.N), also is accused of netting $140 million from insider trading.

Lawyers say the SEC's approach, which focuses on the failure to disclose vital information about the deteriorating quality of company assets, may provide a template for the commission as it seeks to bring cases against executives at other financial institutions that blew up during the crisis.

The SEC's Countrywide case is likely to hinge on several emails released on Thursday by the government that appear to show that Mozilo was concerned the company was "flying blind" because of the low quality of underwriting, and that a type of risky loan it issued was poison.

"While Countrywide boasted to investors that its market share was increasing, company executives did not disclose that its market share increase came at the expense of prudent underwriting guidelines," the lawsuit said.

His attorney, David Siegel, said on Thursday that Mozilo did nothing illegal and that Countrywide's loan portfolio was "well-disclosed to and understood by the marketplace".

Lawyers say the defense may try to show the emails were taken out of context, or that the comments were hypothetical.

"The bottom line," one released email read, "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."

"There is no question the government culled through hundreds, if not thousands, of emails to pull out the ones they think are most damning," Mintz said. "The defense is going to comb through there to show there was more going on there."

Defense lawyer Andrew Sandler, who represents financial institutions in government regulatory proceedings, said that "without context, the allegations in the complaint should be taken with a grain of salt.

"This is one of the first, in what is likely to be ongoing efforts by government, to seek to blame senior executives for the problem in mortgage markets," said Sandler, of BuckleySandler in Washington D.C.

The defense may also be able to chip away the image the government has painted of Mozilo as a poster boy for easy credit by reminding jurors of his nearly four-decades as a respected mortgage industry leader, said Paul Muolo, author of "Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis."

"He didn't create subprime, he followed everyone else in and became the biggest fish in the pond," Muolo, executive editor of National Mortgage News, said. "His big problem was his ego and his greed." (Reporting by Gina Keating, editing by Leslie Gevirtz)