SEC Drops Hammer on Mozilo (Update4)

In private, though, Khuzami said internal communications between the executives showed that they knew the truth. Instead of disclosing the seedy financial realities and heeding the repeated warnings from the company's own credit risk officer, the execs hid the information.

Attorneys for both Sambol and Sieracki refuted the allegations. "Making groundless allegations and losing in court will not help the SEC restore its reputation," said Sambol's attorney Walter Brown.

Sieracki's attorney Shirli Fabbri Weiss said her client bought Countrywide stock during the time when the SEC claims he was withholding information from investors.

"Mr. Sieracki lost money just like all other investors in Countrywide stock when the credit markets seized up and real estate values declined," she said.

The SEC cites several communications between the three execs. The complaint refers to one internal email where Mozilo said the company was "flying blind" and had "no way" to predict the performance of its pay-option ARM loan program. That message was kept under wraps.

In one exchange in April 2006, Mozilo expressed concern to Sambol about Countrywide's subprime 80/20 loans, despite the fact that the company was saying nothing of the sort in public. These loans allowed borrowers to finance 100% of a home's value by borrowing 80% in a primary mortgage and 20% in a secondary. "In all my years in the business I have never seen a more toxic prduct [sic]," Mozilo is alleged to have said to Sambol. "It's not only subordinated to the first, but the first is subprime. In addition, the FICOs are below 600, below 500 and some below 400."

' ''' '

In another exchange that Khuzami discussed during the press conference, Mozilo said that he knew that borrowers would suffer "payment shock" to pay back loans. "These trends and these concerns were never revealed to Countrywide investors," Khuzami said.