SEC to Get Personal With Ex-Countrywide Trio

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SEC to Get Personal With Ex-Countrywide Trio
Angelo Mozilo

Executives nationwide will be watching closely when Angelo Mozilo, after more than two years out of the public eye, appears in federal court next week for the start of his civil fraud trial.

The disgraced former head of Countrywide Financial Corp., who is accused by the Securities and Exchange Commission of deliberately misleading investors about the lender’s growing subprime mortgage losses, is one of the first individuals to face charges related to his role in the housing market’s collapse.

The trial, set to begin Oct. 19 in U.S. District Court in Los Angeles, could have a significant effect on federal regulators’ efforts to hold executives personally accountable for decisions contributing to the housing and financial crisis, analysts said.

“This is a watershed civil proceeding,” said Manny Medrano, a trial lawyer in Los Angeles and former prosecutor with the U.S. Attorney’s Office.

In June 2009, the SEC sued Mozilo, former Countrywide President David Sambol and former Chief Financial Officer Eric Sieracki, claiming they reassured shareholders that the company’s underwriting was sound while acknowledging internally that the loans were deteriorating. Regulators have also charged Mozilo with insider trading for selling $140 million in stock holdings during that period.

Lawyers for the defendants, who did not return calls requesting comment, have contended in court filings that the former executives did not break any laws.

The SEC plans to call Mozilo and his two former colleagues to the witness stand. Others on preliminary witness lists range from colleagues to experts, including Stanford Kurland, Countrywide’s former chief operating officer and founder of Private National Mortgage Acceptance Co. in Calabasas; Richard Green, director of the USC Lusk Center for Real Estate; and Henry Cisneros, the former secretary of the U.S. Department of Housing and Urban Development.

They also have a trove of internal documents and e-mails, including one from 2006 in which Mozilo said the company was “flying blind” in trying to assess the performance of certain loans, according to court filings.

However, Mozilo’s lawyers have said that all information he could have reasonably believed should have been disclosed was done so in filings and that the collapse of the company was due to unforeseeable market forces. Countrywide was sold to Bank of America Corp. in 2008.

Attorneys for the defendants have hinted in filings at other possible defense strategies. For example, the lawyer for Sieracki said in a recent motion that his client simply relied on the advice of in-house counsel.

Analysts say cases such as this are difficult to prosecute because the SEC must prove that any failure to disclose information was deliberate and not simply a matter of negligence or poor judgment.

Harvey Pitt, former SEC chairman, said it is critical for regulators to make examples out of wrongdoers, making the Countrywide case worth the risk.

“The SEC has limited resources, and has to pick its cases carefully. But the Countrywide situation was a particularly egregious one, based on the allegations, and it is important for the SEC to make its presence felt, especially in cases that involve high-profile defendants and high-profile issues,” said Pitt, in an e-mail last week to the Business Journal. 

Pitt, who headed the agency between 2001 and 2003, oversaw a number of enforcement efforts against major corporations, which eventually led to high-profile convictions of executives at Enron Corp., WorldCom Inc. and other companies.

The U.S. Attorney’s Office is pursuing a criminal probe against Mozilo, which analysts believe could gain momentum with a victory by the SEC.

“I think when all is said and done, the likelihood of criminal charges against these executives is very, very high,” Medrano said.

C-Suite News

Saehan Bancorp, the Koreatown parent of Saehan Bank, announced that Chief Executive Chung Hoon Youk has decided to resign Oct. 22 for undisclosed personal reasons. Chief Financial Officer Daniel Kim will assume Youk’s duties until a permanent replacement is found. … Southern California economist Sung Won Sohn has resigned from the board of First California Financial Group Inc., the Westlake Village parent of First California Bank. … Bel Air Investment Advisors LLC, a wealth management firm in Century City, has hired Carol Cheng-Mayer as vice president. … Century City investment bank Imperial Capital LLC has announced two hires. The firm named Jeff Zolkin managing director and head of leveraged finance, and hired Matthew Spain as a managing director. … Wells Fargo & Co.’s family office division has hired Rich Byrd as regional managing director for Southern California. … Pasadena’s Community Bank has named David Rosso business center manager at the institution’s new Woodland Hills office. … Accounting firm Grant Thornton LLP has hired Sonia Burda as an executive director in the L.A. office.

Staff reporter Richard Clough can be reached at [email protected] or at (323) 549-5225, ext. 251.

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