Comments on: Guest post: Former Countrywide head Mozilo is charged by the SEC http://www.nakedcapitalism.com/2009/06/former-countrywide-head-mozilo-is.html Mon, 23 Nov 2009 06:07:28 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: stark http://www.nakedcapitalism.com/2009/06/former-countrywide-head-mozilo-is.html#comment-48439 stark Fri, 05 Jun 2009 16:47:25 +0000 http://www.nakedcapitalism.com/2009/06/guest-post-former-countrywide-head-mozilo-is-charged-by-the-sec/#comment-48439 In a civil case, the government can prevail with "preponderance of the evidence" rather than the tougher "beyond a reasonable doubt." I agree with the commenter who said that a settlement of this case is likely. Mozilo will shell out a big, headline-worthy amount in fine and disgorgement, he will accept an injunction that in effect forces him to retire in the prime of life--he's only 70-- :-) <br />And he will not admit wrongdoing, and he will die a lot richer than me. In a civil case, the government can prevail with "preponderance of the evidence" rather than the tougher "beyond a reasonable doubt." I agree with the commenter who said that a settlement of this case is likely. Mozilo will shell out a big, headline-worthy amount in fine and disgorgement, he will accept an injunction that in effect forces him to retire in the prime of life–he's only 70– :-)
And he will not admit wrongdoing, and he will die a lot richer than me.

]]> By: Edward Harrison http://www.nakedcapitalism.com/2009/06/former-countrywide-head-mozilo-is.html#comment-48408 Edward Harrison Fri, 05 Jun 2009 06:11:35 +0000 http://www.nakedcapitalism.com/2009/06/guest-post-former-countrywide-head-mozilo-is-charged-by-the-sec/#comment-48408 Eric,<br /><br />I think you misunderstood the question. I outlined three possibilities. 1. Was the Obama team being careful in preparing it's case OR 2. Was it captured and didn't feel prosecution was necessary OR 3. Some third more nefarious alternative<br /><br />Certainly, there might be other benign alternatives as well, but you should not think I was implying they were captured simply because they were being careful in preparing a case.<br /><br />Stark, the fact that this is civil and not criminal is interesting. One could legitimately claim that they are bringing a weak case to court to be seen as having prosecutorial zeal and that, in truth, there are no smoking guns as in Enron. Eric,

I think you misunderstood the question. I outlined three possibilities. 1. Was the Obama team being careful in preparing it's case OR 2. Was it captured and didn't feel prosecution was necessary OR 3. Some third more nefarious alternative

Certainly, there might be other benign alternatives as well, but you should not think I was implying they were captured simply because they were being careful in preparing a case.

Stark, the fact that this is civil and not criminal is interesting. One could legitimately claim that they are bringing a weak case to court to be seen as having prosecutorial zeal and that, in truth, there are no smoking guns as in Enron.

]]> By: JEFF http://www.nakedcapitalism.com/2009/06/former-countrywide-head-mozilo-is.html#comment-48406 JEFF Fri, 05 Jun 2009 06:00:56 +0000 http://www.nakedcapitalism.com/2009/06/guest-post-former-countrywide-head-mozilo-is-charged-by-the-sec/#comment-48406 I'm betting that this case is settled for a few million without admitting any wrong doing on the Tan Man's part. What really sucks is the taxpayer will be paying for Tanzillo's defense courtesy of BAC receipt of billions of dollars of bailout money! I'm betting that this case is settled for a few million without admitting any wrong doing on the Tan Man's part. What really sucks is the taxpayer will be paying for Tanzillo's defense courtesy of BAC receipt of billions of dollars of bailout money!

]]> By: Eric http://www.nakedcapitalism.com/2009/06/former-countrywide-head-mozilo-is.html#comment-48405 Eric Fri, 05 Jun 2009 05:54:36 +0000 http://www.nakedcapitalism.com/2009/06/guest-post-former-countrywide-head-mozilo-is-charged-by-the-sec/#comment-48405 Preparing a careful case is simply not a sign of regulatory "capture". This statement reminds me of a recent Nakedcapitalism.com post that thoroughly confused civil versus criminal procedure. The fact that the SEC did anything at all would indicate, to me at least, that the agency may be turning a new leaf. The Madoff letter to the SEC is the best circumstantial evidence that one could present to prove that the SEC -- at that point in time -- was either captured or simply hopelessly incompetent and crippled, most likely by design. Preparing a careful case is simply not a sign of regulatory "capture". This statement reminds me of a recent Nakedcapitalism.com post that thoroughly confused civil versus criminal procedure. The fact that the SEC did anything at all would indicate, to me at least, that the agency may be turning a new leaf. The Madoff letter to the SEC is the best circumstantial evidence that one could present to prove that the SEC — at that point in time — was either captured or simply hopelessly incompetent and crippled, most likely by design.

]]> By: jerrydenim http://www.nakedcapitalism.com/2009/06/former-countrywide-head-mozilo-is.html#comment-48399 jerrydenim Fri, 05 Jun 2009 05:19:56 +0000 http://www.nakedcapitalism.com/2009/06/guest-post-former-countrywide-head-mozilo-is-charged-by-the-sec/#comment-48399 Ed, it is very kind of you to give the Obama administration the benefit of the doubt, I attempt to do the same when it appears reasonable. If Obama or his econ team truly believed that earnest investigation and prosecution would have undermined public confidence to point it endangered the entire system then "benevolent neglect" may have truly been benevolent not nefarious. If that was the situation then perhaps we will never know if the right call was made. On the other hand a thorough investigation and aggressive prosecution of miscreants could have restored faith in the American economy and could have helped buoy the dollar, T-Bill auctions, and encouraged foreign investment. Such a pursuit of justice could have also lead to meaningful reform which could prevent an even worse meltdown in just a few years. Time will likely tell.<br /><br />Skippy, I agree that a Pecora II seems pretty far fetched based on what I've seen at this point. I don't think either party has much interest in biting the hand of their pay-masters. Your analogy between the shared trove of extortion ready information the two parties have on each other and nuclear warfare is an extremely apt metaphor. To take the metaphor further, I would say you never need to worry about either party dropping the bomb on the other, because the mutual dirt sets up a cold war MAD situation between the two with respect to any major issue confronting the voting public. If and when there ever is a Pecora II you can bet it will be a repeat of the 9/11 commission. A carefully picked, perfectly balanced committee of career partisans with not so visible but deep ties to both their respective parties and the financial industry. These men and women will be perfectly unified and singular in their purpose: "You cover my boss's ass, I cover yours. Nobody looks too bad, everyone gets out alive. We'll dig just deep enough to look like we're doing something but we'll leave out all of the really rotten stuff, then we'll create some new worthless federal agency or program to make it look like we've accomplished something. Case closed move along, nothing to see here." <br /><br />Bipartisan ass covering at its finest. Wherever mutual self preservation is concerned Democrats and Republicans can be very good at playing nice together. Ed, it is very kind of you to give the Obama administration the benefit of the doubt, I attempt to do the same when it appears reasonable. If Obama or his econ team truly believed that earnest investigation and prosecution would have undermined public confidence to point it endangered the entire system then "benevolent neglect" may have truly been benevolent not nefarious. If that was the situation then perhaps we will never know if the right call was made. On the other hand a thorough investigation and aggressive prosecution of miscreants could have restored faith in the American economy and could have helped buoy the dollar, T-Bill auctions, and encouraged foreign investment. Such a pursuit of justice could have also lead to meaningful reform which could prevent an even worse meltdown in just a few years. Time will likely tell.

Skippy, I agree that a Pecora II seems pretty far fetched based on what I've seen at this point. I don't think either party has much interest in biting the hand of their pay-masters. Your analogy between the shared trove of extortion ready information the two parties have on each other and nuclear warfare is an extremely apt metaphor. To take the metaphor further, I would say you never need to worry about either party dropping the bomb on the other, because the mutual dirt sets up a cold war MAD situation between the two with respect to any major issue confronting the voting public. If and when there ever is a Pecora II you can bet it will be a repeat of the 9/11 commission. A carefully picked, perfectly balanced committee of career partisans with not so visible but deep ties to both their respective parties and the financial industry. These men and women will be perfectly unified and singular in their purpose: "You cover my boss's ass, I cover yours. Nobody looks too bad, everyone gets out alive. We'll dig just deep enough to look like we're doing something but we'll leave out all of the really rotten stuff, then we'll create some new worthless federal agency or program to make it look like we've accomplished something. Case closed move along, nothing to see here."

Bipartisan ass covering at its finest. Wherever mutual self preservation is concerned Democrats and Republicans can be very good at playing nice together.

]]> By: Carlosjii http://www.nakedcapitalism.com/2009/06/former-countrywide-head-mozilo-is.html#comment-48395 Carlosjii Fri, 05 Jun 2009 03:05:05 +0000 http://www.nakedcapitalism.com/2009/06/guest-post-former-countrywide-head-mozilo-is-charged-by-the-sec/#comment-48395 More prosecutions of bank execs? Where do you think the “campaign” (champagne) $$$ comes from. DC is totally pay-to-play. The O team as architects of change?????<br /><br /> Rahm Emanuel took $340,000 out of FRE in the year before the election. Obama will end up as the Hoover of our generation. More prosecutions of bank execs? Where do you think the “campaign” (champagne) $$$ comes from. DC is totally pay-to-play. The O team as architects of change?????

Rahm Emanuel took $340,000 out of FRE in the year before the election. Obama will end up as the Hoover of our generation.

]]> By: dd http://www.nakedcapitalism.com/2009/06/former-countrywide-head-mozilo-is.html#comment-48392 dd Fri, 05 Jun 2009 02:28:56 +0000 http://www.nakedcapitalism.com/2009/06/guest-post-former-countrywide-head-mozilo-is-charged-by-the-sec/#comment-48392 This will be a difficult case. It is not an underlying fraud case ie Mozilo engaged in fraudulent practices and hid the fraud; but rather it's a failure to disclose business practices that resulted in less stringent underwriting guidelines and increasing credit risk. For example, there is no allegation of phantom loans or even predatory lending or the state AG settlement (Of course that raises the issues of Greenspan's blind eye to predatory lending:http://online.wsj.com/article/SB118134111823129555.html?mod=todays_us_money_and_investing).<br />The problem: the less than stellar underwriting practices on non-GSE are detailed in other SEC filings ie the prospectuses for the specific securitizations. So the underwriting practices are public; but not detailed in the periodic filings.<br />Even the hedgie CWALT purchasers like Greenwich have not sued CW for fraud; but pursued an end run aimed at the AG settlements.<br />Then too if hedge funds alleged fraud that would raise issues about their due diligence on behalf of investors.<br />The problem is in a vast consortium everyone is inter-webbed and so will remain silent lest their own lack of due diligence is exposed. <br />I wish the SEC luck and the sheer audacity of Mozilo's sales will probably carry the day; but the complaint is no Enron in terms of phantom trading floors and nonexistent deals. This will be a difficult case. It is not an underlying fraud case ie Mozilo engaged in fraudulent practices and hid the fraud; but rather it's a failure to disclose business practices that resulted in less stringent underwriting guidelines and increasing credit risk. For example, there is no allegation of phantom loans or even predatory lending or the state AG settlement (Of course that raises the issues of Greenspan's blind eye to predatory lending:http://online.wsj.com/article/SB118134111823129555.html?mod=todays_us_money_and_investing).
The problem: the less than stellar underwriting practices on non-GSE are detailed in other SEC filings ie the prospectuses for the specific securitizations. So the underwriting practices are public; but not detailed in the periodic filings.
Even the hedgie CWALT purchasers like Greenwich have not sued CW for fraud; but pursued an end run aimed at the AG settlements.
Then too if hedge funds alleged fraud that would raise issues about their due diligence on behalf of investors.
The problem is in a vast consortium everyone is inter-webbed and so will remain silent lest their own lack of due diligence is exposed.
I wish the SEC luck and the sheer audacity of Mozilo's sales will probably carry the day; but the complaint is no Enron in terms of phantom trading floors and nonexistent deals.

]]> By: Paul http://www.nakedcapitalism.com/2009/06/former-countrywide-head-mozilo-is.html#comment-48384 Paul Fri, 05 Jun 2009 00:21:34 +0000 http://www.nakedcapitalism.com/2009/06/guest-post-former-countrywide-head-mozilo-is-charged-by-the-sec/#comment-48384 If that's all they have on him, the SEC doesn't have much of a case. I'm no fan of the sleazy Tangelo, but lets face it, he did what any CEO is supposed to do. He was the company chearleader and I'm sure the corporate disclosures were vague enough. His selling was fully disclosed and set up to automatically sell shares every month. He didn't control the timing.<br /><br />Now, what about Lehman, Bear Stearns, AIG, Citi, Wachovia, the list goes on and on. Were they taking silly undisclosed risks? And a $90 billion dollar hole in GM's balance sheet? didn't the execs get in front of Congress and say things were tough but with $10 billion they'd be just peachy? Why didn't the auditors note a $90 billion gap between assets and liabilities?<br /><br />Can you see the CEO of Pepsi saying, yeah they just mix water, sugar and some CO2 gas, put it in a bottle and people pay silly amounts for it. And they can't even do that as well as Coke. Hell, no, Pepsi's CEO is the company chearleader - they make the best fizzy sugary drinks around.<br /><br />I hope the SEC has something a lot more damning on the Tan One than what they've disclosed. If that's all they have on him, the SEC doesn't have much of a case. I'm no fan of the sleazy Tangelo, but lets face it, he did what any CEO is supposed to do. He was the company chearleader and I'm sure the corporate disclosures were vague enough. His selling was fully disclosed and set up to automatically sell shares every month. He didn't control the timing.

Now, what about Lehman, Bear Stearns, AIG, Citi, Wachovia, the list goes on and on. Were they taking silly undisclosed risks? And a $90 billion dollar hole in GM's balance sheet? didn't the execs get in front of Congress and say things were tough but with $10 billion they'd be just peachy? Why didn't the auditors note a $90 billion gap between assets and liabilities?

Can you see the CEO of Pepsi saying, yeah they just mix water, sugar and some CO2 gas, put it in a bottle and people pay silly amounts for it. And they can't even do that as well as Coke. Hell, no, Pepsi's CEO is the company chearleader – they make the best fizzy sugary drinks around.

I hope the SEC has something a lot more damning on the Tan One than what they've disclosed.

]]> By: skippy http://www.nakedcapitalism.com/2009/06/former-countrywide-head-mozilo-is.html#comment-48383 skippy Fri, 05 Jun 2009 00:12:25 +0000 http://www.nakedcapitalism.com/2009/06/guest-post-former-countrywide-head-mozilo-is-charged-by-the-sec/#comment-48383 I'm with jerry and Ed H. The shot that stampeded the herd was not a desirable out come and until around 80% (irrefutable mandate) of the population bays for blood, will it be possible to have pecora II.<br /><br />The amount of trash all party's have on each other scares me more than tactical-nuke warfare. If the information came out all at once it would be like shoving a hippo down a pythons gob, death ensuing for both. I'm with jerry and Ed H. The shot that stampeded the herd was not a desirable out come and until around 80% (irrefutable mandate) of the population bays for blood, will it be possible to have pecora II.

The amount of trash all party's have on each other scares me more than tactical-nuke warfare. If the information came out all at once it would be like shoving a hippo down a pythons gob, death ensuing for both.

]]> By: stark http://www.nakedcapitalism.com/2009/06/former-countrywide-head-mozilo-is.html#comment-48382 stark Fri, 05 Jun 2009 00:07:27 +0000 http://www.nakedcapitalism.com/2009/06/guest-post-former-countrywide-head-mozilo-is-charged-by-the-sec/#comment-48382 In the civil suit, the government seeks unspecified fines and penalties, disgorgement of improperly obtained profits, and an injunction barring Mozilo and his two co-defendants from serving as officer or director of a publicly-traded company. That's it. In the civil suit, the government seeks unspecified fines and penalties, disgorgement of improperly obtained profits, and an injunction barring Mozilo and his two co-defendants from serving as officer or director of a publicly-traded company. That's it.

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