Criminal probe dropped against Countrywide CEO Angelo Mozilo

By E. Scott Reckard
Saturday, February 19, 2011; A04

LOS ANGELES - Federal prosecutors have shelved a criminal investigation of Angelo R. Mozilo after determining that his actions in the mortgage meltdown - which led to a $67.5 million settlement against him - did not amount to criminal wrongdoing.

As the former chairman of Countrywide Financial, Mozilo helped fuel the boom in risky subprime loans that led to the crippling of the banking industry and the near-collapse of the financial system.

A federal grand jury in Los Angeles began investigating Mozilo in 2008, and four months ago he agreed to pay a $22.5 million fine and to repay $45 million in what the government said were ill-gotten gains to former Countrywide shareholders. The payments settled a civil action by the Securities and Exchange Commission.

But the criminal investigation has wound down without indictments of Mozilo or others at his company, according to people familiar with the prosecution and the defense teams, all of whom spoke on the condition of anonymity because they were not authorized to discuss the matter.

"Sometimes the public thinks all you have to do is to indict someone and that's it," one of the federal sources said. "But you have to be able to prove your case, and it can be worse losing a case than not bringing one at all."

Mozilo, 72, hung up the phone when contacted for comment at his home in the Lake Sherwood golf community in Ventura County, Calif.

[A federal law enforcement official, also speaking on condition of anonymity, confirmed to The Washington Post that "the criminal investigation into the Countrywide matter has been concluded."]

Columbia University law professor John Coffee said mortgage cases like Mozilo's were muddied by the numerous parties involved, unlike Enron and other "cook the books" cases in which executives were convicted.

Countrywide's model was to make or buy mortgages only to sell them off immediately to Fannie Mae or Wall Street as fodder for securities.

Given that model, Coffee said, blame could be assigned to an entire chain of players: mortgage brokers who falsified applications; investment bankers who concocted complex and "opaque" mortgage bonds; rating firms that provided high ratings on the bonds but said they were lied to; and institutional investors that relied on dubious ratings because the securities carried above-market interest while promising to be risk-free.

Los Angeles defense lawyer Jan Handzlik agreed, saying it was easier to prove greed and negligence against mortgage and Wall Street executives than criminal intent. He noted that federal prosecutors have convicted "some of the low-hanging fruit," such as mortgage brokers, appraisers, lending officers and individual borrowers - people who "directly defrauded a bank for personal gain."

The criminal investigation into Mozilo was never announced publicly, and as a rule federal prosecutors make no formal announcement when such cases are closed.

One defense attorney, however, said the government would probably keep a close watch on civil litigation by Countrywide shareholders against Mozilo and could still decide to bring charges depending on what develops in those cases.

"He may have to testify, and you never know what may come up," the attorney said.

Assistant U.S. Attorney Stephen A. Cazares, who spearheaded the Countrywide criminal investigation, could not be reached for comment. A spokesman for U.S. Attorney Andre Birotte Jr. said the office would have no comment "at this time."

Countrywide, at one time the nation's top mortgage company, collapsed under the weight of soured loans and was acquired by Bank of America - which also has suffered financial damage from Countrywide loans.

- Los Angeles Times

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