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Question of the Day – Mozilo and Countrywide
By JLP | May 14, 2009
I saw in today’s WSJ that the SEC is about to charge Angelo Mozilo with fraud:
The charges the SEC is considering include alleged violations of insider-trading laws and alleged failure to disclose material information to shareholders, according to people familiar with the matter.
Mr. Mozilo sold $130 million of Countrywide stock in the first half of 2007 under an executive sales plan, according to securities filings, compared with $60 million in the year-earlier period. He had modified his prearranged plan in late 2006 to accelerate the sales.
So, here’s today’s Question of the Day:
Do you think the SEC should be charging Mozilo with fraud or do you think they are just looking for a reason to can this guy because of who he is?
My thoughts:
I think the last sentence of the last paragraph in the quote from the Wall Street Journal makes him look very suspicious. Take a look at this one-year chart I found at SeekingAlfa:
So Mozilo was making arrangements in 2006 so that he could accelerate his stock sales? Looks suspicious to me. I’m not quite sure how this could be construed as insider-trading though. Was he using insider information for his own benefit? I mean we all knew what was coming. We all knew that giving loans to people who couldn’t afford to pay them back was going to lead to serious trouble. We all knew this.
Topics: Credit Crisis, Housing Market | 2 Comments »
May 15th, 2009 at 5:02 am
This should be interesting…
SEC Rule 10b-5
“SEC Rule 10b-5, is one of the most important rules promulgated by the U.S. Securities and Exchange Commission, pursuant to its authority granted under the Securities Exchange Act of 1934. The rule prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security, including insider trading.
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
In the case of TSC Industries, Inc. v. Northway, Inc., the word “material” was defined by the U.S. Supreme Court – “an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.”
In order to establish a claim under Rule 10b-5, plaintiffs (including the SEC) must show (i) Manipulation or Deception; (ii) Materiality; (iii) “In Connection With” the purchase or sale of securities; and (iv) Scienter.”
so Mozilo sure does look suspicious, but “proving” it may be difficult. I just don’t see how SEC will be able to prove (iv) Scienter. All he did was adjust the stock sale schedule…it was documented…not like he hid it. It looks supicious, but does not prove malicious intent…it could merely be coincident.
My personal opinion? He’s guilty has hell and should be stripped of ALL compensation received during his stay at Countrywide and THEN fined on top of that for being an unethical prick.
May 15th, 2009 at 5:05 am
@JLP: you should look into a more feature-rich commenting system for you blog such as IntenseDebate (http://www.intensedebate.com/).