* Mozilo agrees to $67.5 million settlement of SEC lawsuit
* Bank of America to pay $45 mln of Mozilo settlement
* Two other former executives also settle with regulators
* Trial, set for Tuesday in LA federal court, now canceled
(Adds advocate quote, subprime history)
By Alex Dobuzinskis and Dan Levine
LOS ANGELES/SAN FRANCISCO, Oct 15 Former
Countrywide chief Angelo Mozilo agreed to a settlement of $67.5
million to resolve charges of duping the home lender's
investors while lining his own pockets, but Bank of America
Corp (BAC.N) will pick up two-thirds of the tab.
The flamboyant poster boy of the subprime mortgage market's
boom and bust struck a last-minute deal with the U.S.
Securities and Exchange Commission before his trial on civil
fraud charges was to start next week.
The most prominent executive charged by regulators with
wrongdoing linked to the housing market collapse, Mozilo on
Friday became the recipient of the highest fine ever dished out
to an executive of a public corporation.
Some would argue Mozilo -- accused of hiding risks in
Countrywide's portfolio, then selling off stock before it
became public -- is getting off lightly, amid outrage over the
financial industry's role in bringing about the crisis.
In July, Goldman Sachs agreed to pay $550 million to settle
charges related to how it marketed a subprime mortgage product.
At the same time, the SEC has been under fire for how it
handled probes into Ponzi-schemers Allen Stanford and Bernard
Mozilo settled without admitting or denying any wrongdoing.
Bank of America, which bought Countrywide in 2008, said it will
advance $45 million to Mozilo for the settlement, as required
by indemnification provisions.
"He's got a nice pile of cash and he can live the rest of
his life, assuming he's not indicted, pretty well," said
Michael Perlis, a former SEC attorney.
Robert Khuzami, director of enforcement at the SEC, pointed
out that a $22.5 million civil penalty will still come out of
Mozilo's pocket. But state law permits companies to indemnify
corporate officers in different circumstances, he said.
"We have in the past attempted to challenge that," Khuzami
said, adding that those efforts had failed.
Mark Seifert, executive director of the East Side
Organizing Project -- a Cleveland, Ohio, group that fights
foreclosure -- said that it's "amazing to me that this guy is
allowed to simply pay a fine and crawl under his rock again."
Mozilo's attorneys were not available for comment. The $45
million disgorgement relates to gains from Mozilo's sales of
FROM BRONX TO CALIFORNIA
The SEC brought the fraud case in June 2009. Mozilo and two
other former executives were accused of failing to disclose the
true state of Countrywide's deteriorating mortgage portfolio.
Regulators also contend Mozilo made nearly $140 million by
dumping Countrywide stock before the truth emerged.
In 2007, Mozilo took in $121.5 million from exercising
stock options and was awarded another $22.1 million of
compensation, according to the industry-backed Leaders of the
Center on Executive Compensation.
Former Countrywide President David Sambol and Chief
Financial Officer Eric Sieracki also settled charges Friday.
The son of a Bronx butcher who embodied a rags-to-riches
success story, Mozilo became the burned face of the mortgage
meltdown when the subprime crisis surfaced in 2007.
The former Countrywide CEO also faces potential criminal
charges, but that investigation had taken a back seat to the
SEC case. Mozilo, Sambol and Sieracki all elected to answer
pre-trial questions from SEC lawyers about their conduct,
instead of invoking their Fifth Amendment right to remain
Some legal observers say this indicates Mozilo's camp did
not think there was a high likelihood of criminal indictment.
Once the largest U.S. mortgage lender, Countrywide and
Mozilo became synonymous with risky lending practices.
Countrywide extended no-down-payment, adjustable-rate
mortgages and interest-only loans to borrowers. The loans often
appealed to aspiring home buyers who would otherwise be unable
to obtain a traditional mortgage, but the amount they owed each
month often ballooned beyond their ability to pay.
At the height of its success in 2006, Calabasas,
California-based Countrywide originated $461 billion worth of
loans -- close to $41 billion of which were subprime.
But subprime mortgages ultimately poisoned the U.S.
mortgage market. As the mortgage crisis spread in 2007 and
early 2008, Countrywide acknowledged about one in 11 borrowers
overall and more than one in three subprime borrowers had
fallen behind on home loan payments.
Bank of America bought Countrywide for $2.5 billion in
2008, less than 10 percent of what the company was worth in
The settlements, announced in Los Angeles federal court,
resolve SEC charges that Mozilo, Sambol and Sieracki hid the
risks of the company's teetering mortgage portfolio as the real
estate market soured.
Mozilo, who was 70 when the SEC brought the charges in June
2009, agreed that he would not serve as an executive or
director at a publicly traded company, according to court
documents. The SEC said that is a permanent ban.
"In my view the proposed settlement is very reasonable in
light of the significant hurdles that both sides would have
faced in proving their case at trial," U.S. District Judge John
Walter said in court on Friday.
Like Mozilo, Sambol and Sieracki neither admitted nor
denied guilt and did not appear at the court hearing.
Sambol agreed to pay a $520,000 civil penalty, and to
disgorge $5 million, according to court documents. Bank of
America will cover Sambol's disgorgement too.
Sieracki will pay a $130,000 civil penalty.
The SEC generally seeks civil penalties to match any
disgorgement amount, said former federal prosecutor Michael
Shepard, who is not involved in the SEC case. But the defense
lawyers were able to avoid that in the Countrywide case.
"The art of the deal is convincing them to get off the
number they started at, and on to a much better number,"
(Additional reporting by Joe Rauch, Rachelle Younglai and
Sarah McBride; Writing by Dan Levine and Martha Graybow;
Editing by Edwin Chan, Editing by Phil Berlowitz, Gerald E.
McCormick, Gary Hill)