SEC Drops Hammer on Mozilo (Update4)

Khuzami was named the SEC's enforcement director in February, following five years as the General Counsel for the Americas at Deutsche Bank. Before that, he served as chief of the Securities and Commodities Fraud Task Force in the Southern District of New York. "All investors were left with was the mirage," Khuzami said during the press conference.

The insider trading charge against Mozilo centers on four 10b5-1 stock-sales plans that the former CEO used. The plans are pre-set systems meant to trigger buy and sell orders according to predetermined decisions. This, in turn, is supposed to insulate executives from insider trading charges.

But the SEC alleges that Mozilo set up the plans while in possession of inside information in order to exercise more than 5.1 million stock options and other sales just before Countrywide's collapse. At the time, Mozilo was in possession of private information showing Countrywide's increasing credit risk and expected poor loan performance.

Between 2006 and 2007, the SEC said that Mozilo sold shares and made off with close to $140 million.

Mozilo "was actively taking his own chips off the table," Khuzami said. "They made investors the last priority."

Mozilo's attorney David Siegel said the stock sales "complied with applicable laws and regulations, and were made under the terms of a series of written sales plans which were reviewed and approved by responsible professionals."

"All of the SEC's allegations will be answered completely in court and disproved with the full facts and evidence," Siegel said in a statement.

The SEC is seeking to claw back all of the trading profit made, including the $140 million, along with other penalties. Khuzami said the case should send a strong message to corporate executives.