Angelo Mozilo, the former CEO of Countrywide Financial which was bought by Bank of America (NYSE:BAC), tried to get out of facing government fraud charges, US District Judge John Walter told Mozilo that he will indeed stand trial despite his efforts to get the case dismissed.
The SEC case against Mozilo seems simple. He knew that his company was in financial trouble but sold stock in Countrywide and made $140 million. Those charges may be hard to prove.
Moziilo almost certainly knew that the subprime mortgage industry across the nation was facing high default rates in 2007 and that the trend of the defaults was rising. It may be that he and his board could not see the increase in unemployment that was coming and hoped that their industry would turn a corner if housing prices would only keep moving up as they had from 2003 on. That would at least give homeowners a chance to refinance their home loans or get money from second mortgages.
Mozilo’s chance to beat the case is based on the same premise that most legal defenses of CEOs are. He did not know how bad things were or how bad they would get. As many CEOs do, he will probably blame those under him, those who did have details about the market but were slow to pass them along.
Mozilo will say he was too isolated or too befuddled by all the data about Countrywide’s financial problems to fully understand the grim prospects his company was facing. If he can convince a jury that he is an idiot, he might even get off.
Douglas A. McIntyre
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