Countrywide ex-CEO Mozilo must face SEC fraud case

* Mozilo sought to dismiss fraud, insider trading case

* Case also continues against ex-Countrywide COO, CFO

* Judge: Countrywide's poor underwriting could be material

By Jonathan Stempel and Gina Keating

NEW YORK/LOS ANGELES, Nov 4 (Reuters) - A federal judge rejected a request by Angelo Mozilo, the former chief executive of mortgage lender Countrywide Financial Corp, to dismiss a U.S. Securities and Exchange Commission lawsuit accusing him of securities fraud and insider trading.

In a Tuesday court filing, U.S. District Judge John Walter in Los Angeles also rejected requests by David Sambol and Eric Sieracki, respectively Countrywide's former chief operating officer and former chief financial officer, to dismiss related SEC fraud charges.

Countrywide had been the largest U.S. mortgage lender before liquidity dried up in summer of 2007, leading to its acquisition the following year by Bank of America Corp (BAC.N) for $2.5 billion.

Mozilo's lawyer David Siegel did not immediately return a call for comment. Walter Brown, who represents Sambol, declined to comment. Nicolas Morgan, who represents Sieracki, also did not immediately return a call.

The SEC sued the defendants in June, accusing them of misleading investors about the quality of Countrywide's loans, including tens of billions of dollars of risky subprime and adjustable-rate mortgages.

"The specific allegations of the complaint relied on by the SEC describe in great detail the virtual abandonment of prudent underwriting guidelines and the resulting proliferation of poor quality loans, during the same period Countrywide was touting the superior quality of its underwriting guidelines and its loan portfolio," the judge wrote.

"Moreover, given that Countrywide's core business, i.e., selling mortgages into the secondary market, admittedly depended upon the quality of its loan production, it is certainly not difficult for the court to conclude that the poor quality of Countrywide's underwriting practices and loan portfolio would be material to investors," he added.

The insider trading charge concerned Mozilo's alleged exercise in 2006 and 2007 of more than 5.1 million stock options and sale of the resulting shares, leading to more than $139 million of profit.

According to the complaint, Mozilo set up the plan shortly after admitting in an email to colleagues that Countrywide was "flying blind" as to the quality of its loans.

Mozilo, 70, is perhaps the most prominent executive charged by U.S. regulators with wrongdoing in connection with the housing market collapse.

The case is SEC v. Mozilo, U.S. District Court, Central District of California, No. 09-3994. (Editing by Steve Orlofsky)