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For a report of the issues that stimulated the SEC investigation reported below, see


New York Times, October 18, 2007 article


The New York Times




October 18, 2007


Countrywide Chief Is Said to Face S.E.C. Inquiry

The Securities and Exchange Commission has opened an informal investigation into the stock sales of the chief executive of Countrywide Financial, a person briefed on the matter said last night, the latest problem to hit the struggling mortgage lender.

Countrywide’s chief executive, Angelo R. Mozilo, has come under criticism from shareholders who have questioned the timing of the sales, which allowed him to gain more than $132 million in the months before the price plummeted amid the deepening mortgage crisis.

A spokesman for Countrywide, Rick Simon, said last night that “as a matter of policy, we don’t comment on communications with regulators.” The S.E.C. routinely does not comment on its investigations.

The person briefed on the matter asked not to be identified because he was not authorized to speak on the record.

Since 2004, Mr. Mozilo has sold shares through prearranged selling programs, known as 10b5-1 plans after an S.E.C. rule. But the pace of the sales, which have generated $300 million in gains for him since 2005, began to increase in October 2006 when he put a new program in place.

Those planned selling programs, which are intended to protect executives against accusations of trading on inside information, have begun to draw the scrutiny of the S.E.C. The director of enforcement at the commission, Linda Chatman Thomsen, said last week that the agency was taking a closer look at the programs to make sure executives were not using them for “illegitimate purposes.”

Since October 2006, Mr. Mozilo has twice raised the number of shares that could be sold under his plans. In December 2006, when Countrywide shares were trading at $40.50, he increased the number of shares to be sold each month to 465,000 from 350,000. Then in February, when shares hit a high of $45.03, he increased the number of shares sold each month to 580,000.

Shares closed down 74 cents yesterday, to $17.35.

This month, the state treasurer of North Carolina, Richard Moore, wrote to the S.E.C. chairman, Christopher Cox, and questioned the changes Mr. Mozilo made to his selling program.

“The timing of these sales and the changes to the trading plans raise serious questions about whether this is a mere coincidence,” Mr. Moore wrote.

Countrywide, based in Calabasas, Calif., has struggled amid the housing slowdown and credit crisis. In September, the lender announced that it would lay off 12,000 workers.

On Tuesday, Countrywide said it expected to book a pretax charge of $125 million to $150 million related to the layoffs. The company said it expected to book a charge of $57 million in the third quarter, with the rest of the charge in the fourth quarter, according to a regulatory filing.

The company said last week that loans financed in September dropped 44 percent, to $21 billion, from the period a year earlier. Loans in the pipeline fell 35 percent, to $42 billion. The company also said delinquencies as a percentage of unpaid principal balances reached 5.85 percent, up from 4.04 percent in September 2006.

Countrywide is at least the second lender facing S.E.C. scrutiny. In July, the New Century Financial Corporation said it was the subject of a formal investigation by the S.E.C.


Copyright 2007 The New York Times Company




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