SEC Poised to Charge Mozilo With Fraud

The Securities and Exchange Commission staff is readying civil fraud charges against Countrywide Financial Corp. co-founder Angelo Mozilo, in what would be the highest-profile government legal action against a chief executive connected to the financial crisis.

The SEC staff sent a so-called Wells notice to Mr. Mozilo several weeks ago alerting him to the potential charges, people familiar with the matter said. Mr. Mozilo’s lawyers could still persuade the SEC’s commissioners that there isn’t sufficient evidence to bring a case.

David Siegel, a lawyer for the 70-year-old Mr. Mozilo, declined to comment on the investigation and said there is no “fair basis” for any allegations against the former Countrywide chief executive.

The charges the SEC is considering include alleged violations of insider-trading laws and alleged failure to disclose material information to shareholders, according to people familiar with the matter.

Mr. Mozilo sold $130 million of Countrywide stock in the first half of 2007 under an executive sales plan, according to securities filings, compared with $60 million in the year-earlier period. He had modified his prearranged plan in late 2006 to accelerate the sales.

Mr. Siegel said the sales were proper. Talk that Mr. Mozilo “was selling Countrywide stock because he was aware of some supposedly ’secret’ adverse information about the company is scandalous and inconsistent with even a cursory examination of the facts,” the lawyer said.

Calabasas, Calif.-based Countrywide was once America’s biggest home-mortgage lender and rapidly expanded during the mid-decade boom. It lowered requirements for documentation of income and let many borrowers start with low monthly payments, facing much higher payments later. Mr. Mozilo built the company from its founding and was a leading industry figure when the market began to crumble in mid-2007.

Lax lending standards have been blamed for helping to trigger the recession and lead to the far-reaching bailouts of financial firms. The mess prompted calls by members of Congress and others for law-enforcement action against former top officials of financial companies.

Bank of America Corp. agreed to buy Countrywide just as the mortgage market was fraying, paying $2.5 billion in a deal that was completed last July. Mr. Mozilo left shortly before the deal closed. The bank decided last month to retire the Countrywide name.

A Wells notice is a precursor to a civil lawsuit in an SEC investigation. It outlines to an individual or company what charges might be filed and gives a target a chance to respond. If the SEC’s commissioners approve filing a suit against Mr. Mozilo, it could be announced within the next few weeks, said people familiar with the matter. An SEC spokesman declined to comment.

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