JUDY WOODRUFF: The first charges against a major figure in the subprime mortgage crisis have been filed. Angelo Mozilo, who built Countrywide Financial into the country’s largest mortgage lender, was charged yesterday with insider trading and civil fraud.
The Securities and Exchange Commission alleges he misled investors about his company’s lending practices and its overall financial health.
For a closer look, I’m joined by Gretchen Morgenson, who’s been covering the story for the New York Times, and Robert Mintz, a former federal prosecutor and specialist in white-collar crime.
Thank you both.
Gretchen Morgenson, to you first. This is quite a fall for Mr. Mozilo.
GRETCHEN MORGENSON, The New York Times: It certainly is. You know, Judy, in the years when the mortgage mania was building up, Mr. Mozilo was practically a household name. He was almost the sort of personification of the mortgage industry.
And, remember, this was a sort of a new kind of mortgage lending, where it wasn’t your local banker giving you the loan. This was a huge company that he built, really, you know, sort of by the bootstraps, you know, self-made man from the Bronx in New York. So, yes, it really is a fall for him.
Fraud and insider trading
JUDY WOODRUFF: Tell us exactly what the charges are against him and his two former co-executives.
GRETCHEN MORGENSON: Essentially, it's as you said, that he has misled investors. From about 2005 through 2007, the company was claiming that its lending practices were prudent, that they were writing careful mortgages, and yet internal e-mails seem to show that he is concerned about the quality of some of the mortgages that they were making and that some of the products were, in his view, "toxic," to use one word, or "poison" in another.
And so it's that disparity between the public perception and the public description that he made and the private one.
JUDY WOODRUFF: And, Gretchen Morgenson, there was also the insider trading element of this.
GRETCHEN MORGENSON: Yes. At that same period of time, he sold stock worth $140 million, the SEC says, benefiting from this sort of outsider external appearance of, you know, good lending practices, high-priced stock, you know, and that is really how he benefited from it. That's their contention.
JUDY WOODRUFF: Robert Mintz, now, Mr. Mozilo and the other two, they are saying they acted lawfully. How strong is the evidence that the SEC has?
ROBERT MINTZ, Former Federal Prosecutor: Well, it's hard to say exactly at this point, because so far we've only seen the complaint. But what the government has done here is followed a tried-and-true path to prosecution of these cases.
That is, they've taken e-mails, they've culled over hundreds, probably thousands of internal e-mails, and they've contrasted what was being said internally, privately, with Mr. Mozilo's public statements, to try to give the appearance that he was, in fact, saying one thing to the investing public while privately harboring a very different picture of the company.
JUDY WOODRUFF: And, Robert Mintz, is there an understanding of why it's taken so long to bring this case?
ROBERT MINTZ: Well, I don't really think it has. Prosecutors and government regulators typically take their time in these cases. They want to get it right. They know that their cases are going to be difficult to prove. And they know that they're going to be defended by very capable and able defense lawyers.
So they have time on their side. They're going to go through these things very meticulously, and they're going to wait until they believe they have a very strong case before they bring it.
Criminal charges are possible
JUDY WOODRUFF: Gretchen Morgenson, what's your understanding of -- we know these are civil charges. Are you hearing anything at all about criminal charges?
GRETCHEN MORGENSON: Well, oftentimes the SEC will bring civil charges at the same time that the Justice Department files criminal charges; that did not happen in This case.
But, according to people that I've spoke to who know the law, they said that that's not necessarily a clear signal that they're out of the woods from a criminal standpoint. I certainly would be interested in hearing Mr. Mintz's point of view on that, since that's his area of expertise, but it does not seem to be, you know, a get-out-of-prosecution-free card.
JUDY WOODRUFF: Robert Mintz, what about that?
ROBERT MINTZ: Gretchen's exactly right. Typically, you see the SEC working with prosecutors in announcing criminal and civil charges together, but those are run on parallel and separate tracks. They don't exchange information because the laws don't allow them to do it.
Here we've seen the SEC come out in front. It doesn't mean that there might not be criminal charges waiting in the wings coming sometime down the road, weeks or perhaps even months in the future.
JUDY WOODRUFF: But you're saying, if that's the case, we might know absolutely nothing about it at this point, we don't know anything about it?
ROBERT MINTZ: Yes, there's going to be no hint. Prosecutors typically do not comment on pending criminal cases. The only news we will have if, in fact, there are criminal charges are when they announce them.
SEC more aggressive?
JUDY WOODRUFF: Gretchen Morgenson, does this in any way indicate a new, more aggressive posture on the part of the SEC, the Securities and Exchange Commission, under its new head, Mary Schapiro?
GRETCHEN MORGENSON: I think it does. As you know, during the last, say, five years or so, the SEC sort of became almost a moribund agency. There were complaints from internally and externally that the agency had sort of -- was almost asleep at the switch while much of these practices were going on.
And I think that Mary Schapiro has come in there and understands that she has to help change the perception by bringing cases pretty aggressively, enforcement cases.
When Rob Khuzami, who is the director of enforcement, made the announcement about the Mozilo case yesterday, he said that the commission is fully committed to bringing cases that go to the heart of the mortgage meltdown. And so I think this is probably the first of several, if not many.
More companies to be scrutinized
JUDY WOODRUFF: Robert Mintz, what's your sense of that, in terms of a new posture on the part of the SEC?
ROBERT MINTZ: I agree. I think the SEC has taken quite a beating in light of the Madoff case and others. And this gave them an opportunity to shine.
Rather than have the thunder stolen by the criminal prosecutors as is usually the case in these types of announcements, the SEC was out there all alone, looking forceful, looking aggressive, and I think that's exactly what they wanted.
I also agree that this may be only the beginning of what may be a wave of prosecutions and regulatory actions as the government looks very carefully at the actions and the conduct of CEOs and other high-ranking officials inside some of these companies related to the subprime meltdown to see whether they, perhaps, profited just prior to the collapse of their company, and in some way may have used inside information in order to gain financially in an improper or illegal way.
JUDY WOODRUFF: And just quickly, any way of knowing which companies, which executives they're looking at?
ROBERT MINTZ: I don't think so. I think they're going to be picking and choosing very carefully. They're going to be looking for CEOs and other high-ranking officials inside these companies who made a lot of money just before the economy tanked.
JUDY WOODRUFF: All right, and Countrywide Financial being the first among them to be -- to go public with these kinds of charges. Robert Mintz, Gretchen Morgenson, we thank you both.
GRETCHEN MORGENSON: Thank you.
ROBERT MINTZ: Good to be here.