Realty Check

Countrywide's Mozilo: Was He "Wrong" To Sell Stocks?

Angelo Mozilo

I don’t own any stock. That’s not by choice, but by CNBC edict. I just want that out there. Reporters are not allowed to own stock, unless it’s GE (parent company) in the 401K, because we report on companies constantly, and there cannot be any appearance of bias for gain, etc. We report on companies, we do not run them. That’s my preface to this post.

Countrywide CEO Angelo Mozilo is under fire today because of a report that the North Carolina state treasurer, Richard H. Moore, sent a letter to the Securities and Exchange Commission, asking Chairman Christopher Cox to investigate stock sales made by Mozilo in the months before the company’s shares took a nose dive, thanks to the subprime mortgage meltdown (how tired are you of that term??).

Mr. Moore came on CNBC this morning and said, “This is another instance where there's a tremendous amount of smoke around the motivations and trading practices of at least the ceo at countrywide perhaps the whole senior management at a time when profits were propped up and literally went through the roof, by selling, among other things, mortgage products that anybody who broke them apart knew that people were going to default on them. They took those highs, locked into options that they are selling and then changed those selling plans when they started to smell that the market was going astray. And even today when investors have lost over half their value, continued to cash out.”

Countrywide put out a statement last week from Mozilo, saying that the sales “should in no way be viewed as any indication of my future outlook for Countrywide. I recognize that the company’s stock is currently under pressure; however, the terms of the 10B-51 plan that I established in October 2006 require that these sales be executed.”

I called Countrywide today, but they didn’t return my call. I called the SEC, and as is common, the press liaison said they don’t comment on requests for investigations. But it doesn’t take a brain surgeon, or even a reporter like me who has received dozens of emails into her blog about Mozilo’s stock sales over the past six months, to deduce that the SEC has likely heard mention of Mr. Mozilo, and his company, and the whole stock thing, and was likely already looking into it. No offense to Mr. Moore.

According to a report in the New York Times today, “After starting a plan in October 2006, Mr. Mozilo twice raised the number of shares that could be sold: once in December 2006, when Countrywide stock was $40.50, and again in February, when it hit a high of $45.03.” The Times reports Mozilo has made a hefty $132 million since starting the October 2006 and stands to make plenty more after the next sales.

In an exclusive interview with Maria Bartiromo a few months back, here’s how it went with Mozilo:
Bartiromo: Angelo, you’re the largest shareholder, but you’ve been selling stock.
Mr. Mozilo: Yes
Bartiromo: I’ve got to ask you about this. What’s the lowest price you’ve sold at?
Mr. Mozilo: The lowest price was 28 because built into my 10B51 is a can’t sell below $28 a share…..why am I selling? The reason I’m selling is that it is the majority of my net worth, and I have a big family, nine grandchildren, five children. I have a lot of education to pay for, so I have a lot of obligations, but I am sort of at the end of my career, not at the beginning of my career, and I have to plan as to what the future’s going to be, and since I own such an enormous number of shares, there’s a point at which when do I do this? And so I try to do it in an orderly way. So I did it under 10B51s that were put into effect where I don’t have control over it…” He then said he expects the stock to rise.

Ok, now I’m no expert on 10B51s, I admit that. The Times report says these plans do not have to be disclosed publicly and they usually last for a year and are then renewed. The pace of Mr. Mozilo’s stock sales increased just as the market was starting to turn and as news of the subprime issues began to emerge. He will sell off almost all of his remaining shares this week before his October 2006 selling program expires at the end of the month.

So the bottom-line question or questions: Is this a crime? Dunno. Ask the SEC. Is this wrong? Wrong in what sense? Moore says Mozilo should share in the pain of the shareholders, but let’s face it, Mozilo isn’t running a non-profit, he’s running a company that he started many, many years ago, and he became a rich man doing it. Did the milk go sour? Sure. Did he have a hand in it? Well, his product went bad, that’s for sure. Do others (shareholders, if you’re sick of my analogy) have to drink it and get sick? Sure. If he has the legal ability to get out before it gets too bad, should he take it? Your call. As for the whole “insider” thing, it’s not like the subprime meltdown was a secret.

Questions?  Comments?