LOS ANGELES (Reuters) - Prosecutors are at least several months away from deciding whether to bring a criminal case against Countrywide Financial Corp founder Angelo Mozilo, the home loan entrepreneur expected to be hit soon by regulators with civil charges of insider trading.
Federal prosecutors in Los Angeles have been examining Mozilo's activities for more than a year but have yet to find proof he intended to defraud investors through his trading activities, two people familiar with the probe said. The people were granted anonymity because the probe is not public.
"They are not close (to an indictment)," one source said.
That does not mean that they are giving up on their probe into Mozilo, who became a symbol of the nation's real estate bust as millions of Americans faced foreclosure because they took out home loans they could not afford.
Countrywide built much of its growth on riskier home loans, such as subprime and option adjustable-rate mortgages, that often left borrowers owing more than their homes were worth.
Mozilo, 70, is expected to face U.S. Securities and Exchange Commission charges over his sales in late 2006 and 2007 of about $175 million in Countrywide stock, just as the housing downturn was becoming widely evident.
The Wall Street Journal and Los Angeles Times have said SEC staffers served Mozilo and other former Countrywide executives with "Wells notices," indicating that charges are expected, and giving them a chance to mount defenses.
Countrywide is also under investigation by the FBI, authorities have said.
David Siegel, Mozilo's lawyer, declined to comment on "rumors regarding any 'investigation.'
"Mr. Mozilo did nothing improper and there is no basis for any claims against him," he said in an e-mail.
Securities regulators generally have an easier time bringing fraud cases than criminal prosecutors, who must prove criminal intent when imprisonment is possible, according to Laurie Levenson, a Loyola Law School professor.
"There is a huge difference," said Levenson, a former federal prosecutor. "In a civil case, you only have to show it's more likely than not that (the conduct) is a violation. Before we put people behind bars, they have to be proven intentionally criminally responsible."
Throughout 2007, Mozilo remained confident in public about his company's and the housing market's prospects -- opinions from which he apparently did not deviate in private, the sources said.
"Greed is not a crime. Sloppy business practices are not a crime," one source said.
Rosalind Tyson, director of the SEC's Los Angeles office, declined to comment.
The U.S. Attorney's Office in Los Angeles declined to comment or confirm any investigation into Mozilo. An FBI spokeswoman also declined to comment.
Mozilo told investors on an October 26, 2007 conference call that the SEC had opened an informal inquiry into a stock purchase plan he adopted after Countrywide's board asked him to postpone his retirement in 2006, but he denied wrongdoing.
Bank of America Corp bought Countrywide for $2.5 billion last July, about one-tenth what the company had once been worth.
Prosecutors examining Mozilo are looking for evidence -- such as in an e-mail, recording or document -- showing that he knew a housing downturn was coming and nevertheless kept quiet even as he accelerated a preset plan to sell his shares.
One source said prosecutors are also examining whether Countrywide executives fraudulently manipulated financial results to hide signs of a coming wave of defaults.
Investigators are still sifting through tens of millions of documents, one source said.
Levenson said prosecutors could try to prove criminal intent to defraud through circumstantial evidence, a successful tactic against other corporate titans including former Enron Corp Chief Executive Kenneth Lay.
"They would have to show by fair inferences that Mozilo knew that he was violating federal laws, and did it anyway," she said.
Levenson said it is common for white-collar criminal probes to proceed more slowly than SEC lawsuits, and delays usually have no bearing on whether charges are brought.
SEC lawsuits often result in fines, or banishment from service at publicly-traded companies as officers or directors.
Reporting by Gina Keating, editing by Gerald E. McCormick