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Today, the SEC released a statement regarding its move to file fraud charges against Angelo Mozilo, the former CEO of Countrywide.  He’s been accused of “deliberately misleading investors about significant credit risks that were taken in an effort to maintain the company’s market share”.  He’s also been charged with insider trading.

This is the first high level executive to face the consequences of and possibly be forced to take financial responsibility for his role in the current mortgage crisis.  He doesn’t stand alone in these charges, though.  Standing next to him will be the former COO and former Countrywide president, David Sambol and former CFO Eric Sieracki.  Their charges are similar to Mozilo’s.  In part, they’re accused of providing false assurances that Countrywide primarily held prime mortgages and weren’t as much at risk as other lenders that specialized in subprime mortgages.  This is surprising since any mortgage loan officer in this country can attest to Countrywide’s B-C side that specialized in…you guessed it: subprime mortgages.

Mozilo’s lawyer, David Siegel, told The Wall Street Journal that there was no fair basis for any of these charges and reiterated his client’s insistence that all sales were both legal and ethical.  Despite an email that was discovered, written by Mozilo to Sambo and other high level officers, he still claims his actions were ethical:

                … The 100% loan-to-value subprime product is “the most dangerous product in existence and there can be nothing more toxic and therefore requires that no deviation from guidelines be permitted irrespective of the
circumstances.”

Of course, we know those guidelines he speaks of were widely ignored and 100% LTV loans continued, even when potential homeowners had FICO scores in the 400-600 range.  What this boils down to is people were buying homes, with absolutely no money up front aside from the costs of the appraisals and possibly closing costs (which in total, probably amounted to less than $5,000 - if that much).  They could have been considered poor credit risks (any FICO score below 550 is considered poor by most lenders) and still could have purchased a house that they might not could have afforded.

For now, the SEC seems to be content with its big fish.  Whether or not further charges for other head honchos will surface remains to be seen.

Bernard Madoff

Just how exactly does one steal fifty billion dollars without getting caught at say, seventeen million?  Or three hundred million?  Who am I kidding, I’m always the one afraid of getting caught of taking two pennies out of those “need a penny, take a penny” bowls next to cash registers.  I’m always concerned the clerk will say, “If you need two pennies, get a job.”  Clearly, Bernard Madoff doesn’t share the same reservations the rest of us do.  He boldly stole fifty billion dollars before getting caught.  Apparently, the SEC dropped the ball at some point and he managed to bypass the scrutiny of the auditors who, had they done their jobs, would’ve picked up on his “Ponzi” investment scheme years ago.  In fact, since he began his hedge fund in September of 2006, the Securities and Exchange Commission hasn’t darkened his doorway one time.  As a result, over thirty investors have become unlikely victims.  Unlikely because they include incredibly intelligent businessmen and women who have built their fortunes by trusting no one.  As he was being led out of his firm last Wednesday, he told his employees it was all a lie. 

But it’s who brought him down that caught my attention.  It took his two sons to make a phone call that drew the attention from federal investigators.  Apparently, he confessed to the two men shortly before the FBI appeared at his door.  He told the agents and his sons there was no innocent explanation.  He also told both the FBI and the SEC that neither of his sons were involved and had no knowledge of what he was doing.  I can’t imagine how traumatic it must have been to these two men.  Their seventy year old father is quite likely the greatest  con artist of our lifetimes and they were the ones who had to make a choice that would not only affect their lives, but the lives of the investors whose money is now gone.  But that’s not even the point, this man put this burden on his two sons - and left them with that burden of choosing what to do with the information.  A quick visit to his site revealed a message from the US District Court of the Southern District of New York that stated a law firm would be answering any questions as well as overseeing the assets and accounts, or rather, what’s left of the assets and accounts.

Nicola Horlick, one of the clients who was bilked out of millions, had some unpleasant comments about the SEC’s lack of interest in its collective role, “It’s astonishing this apparent fraud seems to have been continuing for years, possibly decades.  The allegations appear to point to a systemic failure of the regulatory and securities markets regime in the U.S.” 

With so much talk of a Ponzi scheme, I had to do a little research to figure out what that entailed.  According to the SEC’s website, Ponzi schemes are named for Charles Ponzi, who, in the 1920s, convinced thousands of people to invest in a postage stamp scheme.  His goal was to manipulate the differences in U.S. and foreign currencies as they related to international mail coupons.  He promised a forty percent return in only ninety days to his investors and used the 5% rate banks were currently paying for savings accounts as the comparison.  Incredibly, he raised one million dollars in three hours.  Keep in mind, this was in the early 1920s.  He invested a grand total of $30.00 to purchase the mail coupons.  Since then, the Ponzi scheme has been too much for some to resist, which is what allows it to remain one of the biggest pyramid schemes and continues to draw those in wishing to get rich quick.

The only thing that’s certain is this has only begun.  It will likely go down in history in a way we wouldn’t want our own life stories to be remembered and retold.

As we’ve all heard by now, the big automakers have submitted their plans that would justify the billion dollars in loans, courtesy of American taxpayers. And too, we’ve all heard the latest out of the sports world and how the NFL has suspended six players for failed drug tests, including the “heart of the Minnesota Vikings”, Kevin Williams and Pat Williams (no relation). The official charges say they violated the league’s steroid policies.

As if these stories and what feels like a million others in yesterdays news weren’t disheartening enough, Birmingham, AL mayor Larry Langford was arrested by the FBI for charges that make one’s head spin. Although information regarding the FBI arrest hasn’t been completely revealed, an SEC

Larry Langford

lawsuit (filed earlier this year) says a Montgomery banker, Bill Blount and Al LaPierre, who is one of Langford’s many cronies, didn’t disclose over $150,000 in payments to Mayor Langford. These payments were the price for some sort of business scheme (probably illegal) within the city of Birmingham. Not only that, but the lawsuit goes on to say the mayor hid the fact that after he received these monies, a 6.7 million dollar contract was conveniently handed to the banker and the cronie. The former commissioner for Jefferson County, John Katopodis, has already been indicted over a bogus charity that Langford founded when he was mayor of a smaller city outside Birmingham. The buzzards are circling, no doubt.

After he was arrested yesterday, his chief of staff in City Hall released a statement that said the arrest was anticipated but suggested the entire “error” was due to bad blood between Langford and a U.S. Attorney, Alice Martin, saying she knows her “days are numbered” as she prepares to exit her current post. Ah, but her hands aren’t necessarily clean either. Her office was ordered to pay $360,000 in June for “misguided prosecution” of an Alabama contractor. Read this story here. It doesn’t stop there. Her less than stellar image has been hit by several controversies, including criticism for her uninvited input during a lawsuit regarding Alabama’s former governor, Don Siegelman. And too, the story with the misguided prosecution of the Alabama contractor has triggered an investigation by the Justice Department into possible misconduct during this trial. There is a fascinating piece that was featured in Harper’s Magazine. Fair warning - it doesn’t put the state of Alabama in a flattering light. In fact, the author, Scott Horton, calls Alabama “home to the nation’s highest profile and most abusive political prosecution”. My guess is Mississippi’s favorite lawyer, John Grisham, will be penning a best-seller regarding these scandals (if he’s not already doing so).

It’s rare that those of us living in the south experience brutally cold temperatures, but it’s heating up fast here, even if it is December. In the meantime, everyone’s waiting to hear the details from Langdon’s arrest yesterday. If you’re interested, he made bail in time yesterday to ensure he’d be present during a City Hall meeting. Those in the know insist this is the tip of the iceberg and promises many heads will roll by the time this scandal wraps up.