SEC Looking Into Countrywide CEO
By: Greg Moore | Source: Los Angeles Times
October 18, 2007 9:01AM EST

Securities regulators are said to be looking into $145 million in stock sales by Countywide Financial Corp. Chief Executive Angelo Mozilo, who ramped up his sales in the months before Countrywide's shares went into a tailspin.

Word of the informal inquiry elicited praise from some political figures.

"This is good news for investors and sends a clear message that the questions raised are serious," said Richard Moore, North Carolina Treasurer, who asked the Securites and Exchange Commission to launch an investigation last week. "I hope this action also sends a strong message to the board at Countrywide that now is the time to show real leadership."

In Washington, Sen. Charles E. Schumer, D-N.Y., released a statement criticizing Mozilo's stock sales.

"Mr. Mozilo spent a good part of his career hurting homeowners," Schumer said. "Now it appears he's been hurting his stockholders, too."

Countrywide representatives couldn't be reached for comment Wednesday . The company has said it is against policy to discuss communications with regulators.

The existence of the investigation was reported by The Wall Street Journal, which cited unidentified sources. SEC officials declined to confirm or deny the report Wednesday .

Staff members of the SEC have said they are scrutinizing the use of the type of trading plan Mozilo employed to unload about 5 million Countrywide shares over the p ast year.

Such plans are designed to shelter executives from insider-trading allegations by setting up in advance a schedule for the purchase or sale of company shares. But an academic study released this year found that executives using trading plans fared far better than average investors -- and that mere chance was probably not the cause of the difference.

Normally, executives set up trading plans and leave them alone. The longer an executive's trading remains regular, the less likely that executive would face charges that he illegally traded on inside information, experts said. But, as reported in September in the Los Angeles Times, Mozilo's trading stood out.

That's because he adopted a trading plan in October 2006, just as the subprime crisis was getting under way. That plan allowed him to sell 350,000 Countrywide shares per month. Less than two months later, he adopted a second plan, allowing him to sell an additional 115,000 shares. He revised the second plan less than two months later to double the number of shares sold. By February, Mozilo was unloading 580,000 Countrywide shares each month.

Since Feb. 2, Countrywide's stock price has tumbled 61 percent .

"I don't think there is any doubt that this is the kind of case that the SEC would want to investigate," said Andrew Stoltmann, a Chicago-based securities attorney.

To bring an insider-trading case against Mozilo, Stoltmann said, the SEC would need to examine internal Countrywide communications to see whether Mozilo knew more than the company had publicly disclosed about its prospects before he launched his trading plans.

News of the SEC investigation came after the stock market closed for the day . Countrywide shares sank 74 cents, or 4.1 percent , to $17.35 on Wednesday.

The company said in a securities filing Tuesday that it expected to incur a pretax restructuring charge of $125 million to $150 million, stemming from its already announced plan to jettison as many as 12,000 workers. About $57 million of that charge is being recognized in the company's third-quarter results, which are due this month.