Countrywide's Mozilo targeted by the SEC

It is interesting to see that the SEC is waking up and actually trying to sue a few people but some interesting questions rises:

• Why now and not during the credit bubble?
• Why Mozilo and not all the other subprime mortgage execs?
• Why not Thain, Ken Lewis, Richard Fuld, Alan Schwartz and the many others who brought their company to the ground and lied to their shareholders?
  

All of these confirm that SEC is a big failure and that along with the Fed, Fannie, Freddie, and several others governments agencies, should be ended.

There's no way to regulate all the companies and avoid fraud. Investors should do their homework. The only way to do that is to enforce total transparency nothing more.

Disclosure of all insider trading should be done. Executive selling big stakes of their companies should be a warning big enough. BlackStone going public should have been a warning big enough.

Enforcing very good accounting practices should be another one. Instead we are seeing the opposite moves in the current climate.

(Bloomberg) -- The day after Countrywide Financial Corp. Chief Executive Officer Angelo Mozilo arranged to start $139 million in stock sales, he told two top deputies there was “no way” to value one of its most popular mortgages.

“We are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales,” he wrote in a 2006 e-mail released yesterday by the Securities and Exchange Commission. “We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet.”

Mozilo, 70, co-founded Countrywide in 1969 and built it into the nation’s biggest home lender. Yesterday he became the most prominent executive targeted by the SEC in a regulatory autopsy of the subprime crisis. He, and the two deputies who received his e-mails on so-called pay-option ARM loans, were accused of hiding deteriorating lending standards before the housing bubble burst. The agency quoted Mozilo’s messages, arguing he avoided losses by making illegal insider trades.

“While hiding his hand from investors, Mozilo was actively taking his own chips off the table” SEC enforcement chief Robert Khuzami told journalists in Washington. “Concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk.”

The defendants, including former Chief Operating Officer David Sambol, 49, and Chief Financial Officer Eric Sieracki, 52, deny wrongdoing. Their lawyers accused the SEC of succumbing to political pressure and cherry-picking quotes from e-mails to build a case. [...]

Sieracki bought Countrywide stock during the period the SEC claims he believed the company was withholding information from the market, said his lawyer, Shirli Weiss. He said Sieracki didn’t violate securities law and called the lawsuit “completely without merit.”

The company has repeatedly come under fire from U.S. officials including Senator Charles Schumer for lax lending standards and its compensation packages.

“Under Angelo Mozilo, Countrywide became the poster child for unconscionable behavior by mortgage lenders,” Schumer, a New York Democrat, said in a statement yesterday. “This is a company that turned the American dream into a nightmare for thousands of innocent borrowers, and misled their shareholders along the way.”

The case is Securities and Exchange Commission v. Mozilo et al, 09-3994, U.S. District Court, Central District of California (Los Angeles).

SEC is a big failure, admits Chairman Cox

Dec. 17 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman Christopher Cox said the agency failed to act for almost a decade on “credible and specific allegations” of wrongdoing by Bernard Madoff, who authorities say bilked investors of as much as $50 billion.

Allegations dating back until at least 1999 “were repeatedly brought to the attention of SEC staff, but were never recommended to the commission for action,” Cox, 56, said in a statement yesterday. He announced an internal probe to review the “deeply troubling” revelations.
[...]
The SEC was under fire before Madoff’s fraud came to light. The collapses of investment banks Bear Stearns and Lehman this year tarnished the SEC’s reputation and lawmakers such as Dodd and Senator Charles Grassley, an Iowa Republican, have questioned its vigilance in enforcing securities laws. Cox, a Republican appointed by President George W. Bush, has said he will leave office at the end of the Bush administration. His term officially ends in June 2009.

No Inspections

SEC Inspector General H. David Kotz released reports this year critical of the agency’s conduct. He said in one that the SEC “failed to carry out its oversight” of Bear Stearns, the New York investment bank that faced collapse in March. He’s also questioned the handling of investigations by the agency’s enforcement staff.

The SEC hadn’t inspected Madoff’s investment advisory business since he registered the firm with the agency in September 2006, two people familiar with the matter said. The SEC tries to inspect advisers at least every five years and to scrutinize new firms in their first year of registration, former agency officials and securities lawyers said.

SEC examiners reviewed Madoff’s brokerage business in 2005 after an investment manager, writing to the agency, and press reports questioned the validity of his investment returns. The SEC’s enforcement division completed an investigation involving the company last year without bringing a claim.

It seems obvious that the SEC has been consistently failing for the past 10 years or so (the Bloomberg report doesn't even mention Fannie and Freddie...). Thank god Cox is leaving. But he should actually have been fired a while ago and maybe brought to justice.