Angelo R. Mozilo, the founder and former chief executive of Countrywide Financial, once the nation’s largest mortgage lender, agreed to pay $67.5 million Friday to settle a civil fraud case brought by the Securities and Exchange Commission last year.
The settlement came just days before the case against Mr. Mozilo and two former colleagues was scheduled to go to trial before a jury in Los Angeles.
The two colleagues settled their cases Friday as well. David Sambol, the former president of Countrywide, agreed to pay $5.52 million, and Eric Sieracki, the former chief financial officer, consented to $130,000.
Under the agreement, the three men did not admit wrongdoing.
Mr. Mozilo’s agreement with the government represents a humbling moment for one of most audacious and flamboyant chief executives in the financial industry. The son of a Bronx butcher, Mr. Mozilo started Countrywide in 1969 with David Loeb, a business partner; together the men built the company into a behemoth with $11.4 billion in revenues at its peak in 2006.
But Countrywide’s foray into subprime lending and other risky loans led to its downfall, and in early 2008, hobbled by mounting losses on loans, the company was purchased by Bank of America in a fire sale. Mr. Mozilo left the company shortly thereafter.
In its complaint filed in June 2009, the S.E.C. had accused Mr. Mozilo, Mr. Sambol and Mr. Sieracki of hiding from investors the growing risks in Countrywide’s operations. The complaint also contended that Mr. Mozilo and Mr. Sambol improperly generated profits on insider stock sales even as they were alerted to the company’s widening woes.
Mr. Mozilo was not present for the court hearing.
Mr. Mozilo’s trial had been widely anticipated because it represented one of the few public prosecutions of a case against a major participant in the mortgage crisis. Still, both the defense and the prosecution faced big risks if they lost at trial, legal experts said, and this may have propelled the recent negotiations to bring about the deal. The settlement was approved by John F. Walter, the federal judge overseeing the case.
Had the S.E.C. won the case, it would have helped the agency re-establish its reputation as an investor advocate, which was badly damaged by inaction in the years leading up to the Madoff Ponzi scheme and the mortgage debacle. A loss would have been another black eye for the S.E.C.
A victory would also have been crucial for Mr. Mozilo, who would be concerned that a criminal prosecution might follow a loss in the civil case.
Sources: CBS News, NY Times, Countrywide, BOFA, Youtube
Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., mounted a defense of his firm amid a grilling today by members of the Financial Crisis Inquiry Commission.
Goldman Sachs is a market-making firm that acquired securities, including mortgages, that were repackaged and sold to clients, and sometimes at a loss, Blankfein told commission Chairman Phil Angelides in response to questioning.
“We represent the other side of what people want to do,” said Blankfein, 55. “Because we had this risk, because we were accumulating positions which, by the way, we acquired from clients who want to sell them to us, we have to go out ourselves and provide and source the other side of the transactions so that we can manage our risk.”
Chiefs of Bank of America Corp., Morgan Stanley and JPMorgan Chase & Co. defended their firms’ actions and blamed the crisis on conditions such as low long-term interest rates and U.S. government policies that encourage and subsidize home ownership. Blankfein bore the brunt of three hours of questions on issues ranging from short-selling to its dealing with insurer American International Group Inc.
Angelides pressed Blankfein on Goldman Sachs’s sale of mortgage-backed securities, its requests to the credit-rating companies for the highest rating while betting the securities will later fail.
“It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars,” Angelides told Blankfein. “It doesn’t seem to me that that’s a practice that inspires confidence in the markets.”
SEC Probe
The Securities and Exchange Commission and brokerage regulators are examining how Wall Street firms bet against mortgage-linked securities to profit as their clients took losses, people familiar with the matter said in late December after report.
Blankfein and the other executives testified in the first day of hearings of the commission, led by Democrat Angelides, the former California Treasurer, and Bill Thomas, a Republican who is a former congressman from California. The commission was created by Congress to examine the causes of a collapse that roiled global markets and led to a $700 billion U.S. government bailout of the nation’s banks.
“Many firms were too highly leveraged, took on too much risk and did not have sufficient resources to manage those risks effectively in a rapidly changing environment,” Morgan Stanley Chairman John Mack, 65, said. “The financial crisis has also made it clear that regulators simply didn’t have the visibility, tools or authority to protect the stability of the financial system as a whole.”
Risk Management
JPMorgan’s focus on risk management and prudent lending, helped the firm avoid setbacks experienced by other companies, said Jamie Dimon, 53, JPMorgan Chase’s chairman and CEO.
The CEOs lead two days of hearings that include Federal Deposit Insurance Corp. Chairman Sheila Bair, SEC Chairman Mary Schapiro and attorneys general from Colorado and Illinois. The panel has six members appointed by Democrats and four by Republicans and has the power to subpoena witnesses and documents.
Blankfein said the firm’s practice of marking assets to market daily helped it decide to cut risk earlier than some rivals. Goldman Sachs was the biggest U.S. securities firm before it and Morgan Stanley converted to banks during the crisis, gaining lending support from the Federal Reserve.
By contrast, Bank of America CEO Brian Moynihan, 50, said mark-to-market accounting exacerbated the crisis as thinly traded assets often had to be recorded at fire-sale prices, triggering losses and further sales.
“The market began to anticipate this downward cycle, and question companies or structures that would become subject to it, in a self-fulfilling way,” Moynihan said in his remarks.
Dimon echoed Moynihan’s concern about mark-to-market accounting.
“Although we are a proponent of fair-value accounting in trading books, we also recognize that market levels resulting from large levels of forced liquidations may not reflect underlying values,” Dimon said.
Congress is considering a financial regulatory overhaul, with the Senate crafting legislation after the House passed a measure last month with rules for derivatives, powers to break apart financial firms whose collapse would threaten the economy and a Consumer Financial Protection Agency. The banking industry and the nation’s biggest business lobby have fought to scale back the legislation.
Financial Profit
Profit at financial institutions, which kick off earnings season with JPMorgan’s fourth-quarter report on Jan. 15, has rebounded and may triple by 2011, according to analyst surveys compiled by Bloomberg News. Charlotte, North Carolina-based Bank of America, the biggest U.S. lender, said last week that it expects to pay record bonuses to some investment bankers. Goldman Sachs, JPMorgan and Morgan Stanley are all based in New York.
All of the executives provided prescriptions for how regulators and the government should deal with banks whose failure could put the economy at risk -- the so-called too-big- to-fail institutions.
Blankfein, who heads the fifth-biggest U.S. bank by assets, proposed that regulators require firms to submit to continuing public “stress tests” to examine whether they have adequate capital. Regulators may require companies to raise so-called contingent capital if stress tests deem they need more capital.
Automatic Re-capitalization
“Making recapitalization automatic if capital levels fall below a public threshold would minimize systemic risk and force shareholders and bondholders to bear the burden of the firm’s mistakes, not taxpayers or the economy,” Blankfein said.
Dimon called for a regulatory authority that would manage failures of large financial institutions in such a way that shareholders and creditors would be at risk.
“A regulator should be able to terminate management and boards and liquidate assets,” Dimon said. “There is much that can be learned from the process by which the FDIC closes banks today,” he said, referring to the Federal Deposit Insurance Corp.
Moynihan said the size of banks shouldn’t be limited and legislation to separate consumer and investment banking -- like the Glass-Steagall law that was overturned in 1999 -- shouldn’t be revived.
“Those arguing for a return of Glass-Steagall are effectively arguing that Bear Stearns was a more stable entity than JPMorgan Chase,” he said. “I don’t see how that is tenable.”
As Bernard Madoff sat in jail a few months after pleading guilty to fraud, he sounded faintly boastful.
The only problem with officials at the Securities and Exchange Commission's Washington headquarters, he said, is that he had "too much credibility with them and they dismissed" the idea that he was scheming people out of billions of dollars.
A document released Friday details a prison interview conducted June 17 by the SEC inspector general in which Madoff says he had the impression that "it never entered the SEC's mind that it was a Ponzi scheme."
Madoff seemed convinced SEC staff did not suspect him, despite the agency's numerous probes of his business. He said in the interview that the SEC examiners "never asked" for basic records to corroborate his operations.
The disgraced financier also confided that he didn't bring an attorney with him when he testified in an inquiry by the SEC's enforcement division because he believed he didn't need one — and he was trying to fool the government investigators into thinking he had nothing to hide.
The details emerged in a summary of Inspector General David Kotz's interview with Madoff at the Metropolitan Correctional Center in New York, released along with hundreds of other documents related to Kotz's extensive investigation of the SEC's stunning failure to detect Madoff's fraudulent scheme for 16 years.
Dear friend of ex-SEC chairman?
Kotz also issued a statement Friday saying his probe found no evidence to support Madoff's claim of having a "close relationship" with SEC Chairman Mary Schapiro, who previously headed the Financial Industry Regulatory Authority, the brokerage industry's self-policing organization. In the interview, Madoff called Schapiro a "dear friend," saying she "probably thinks, I wish I never knew this guy."
Like the SEC, FINRA made periodic exams of Madoff's brokerage operation, which functioned separately from his investment business hidden from regulators' view. An internal review by FINRA found a regulatory breakdown on the part of the organization in the Madoff case.
As the SEC inspectors carried out probe after probe of his business, Madoff said in the interview he was "worried every time" that he'd be caught. "It was a nightmare for me," he said. "I wish they caught me six years ago, eight years ago."
Madoff, 71, a former Nasdaq stock market chairman, pleaded guilty in March to charges that his secretive investment-adviser operation was a multibillion-dollar Ponzi scheme that destroyed thousands of people's life savings and wrecked charities. It was possibly the largest-ever Ponzi: the classic scheme in which investors are paid with other investors' money rather than actual profits on their investment.
He is serving a 150-year sentence in federal prison in North Carolina.
Longtime Auditor expected to plead guilty
The new details from Kotz's inquiry came the same day as word that Madoff's longtime auditor is expected to plead guilty next week in a cooperation deal. Prosecutors told a federal judge in New York that accountant David Friehling was expected to offer a guilty plea at a conference Tuesday to revised charges that accuse him of securities fraud, investment adviser fraud, making false filings to the SEC, and obstructing or impeding administration of the Internal Revenue laws.
The charges carry a prison term of up to 108 years, though significant cooperation with prosecutors can bring leniency.
In his interview with Kotz, Madoff said the SEC never asked him about his tiny accounting firm. It seemed incongruous that, with more than $65 billion in private investments he claimed he oversaw for thousands of people, Madoff used what seemed to be a small-time auditor with a minuscule office in suburban New City, N.Y. Authorities say that Friehling appeared to have rubber-stamped Madoff's records.
Kotz's report of his investigation, made public in early September, painstakingly detailed how the agency's investigations of Madoff were bungled, with disputes among inspection staffers over the findings, lack of communication among SEC offices in various cities and repeated failures to act on credible complaints from outsiders forming a sea of red flags.
An inspection of Madoff's operation in 2003-04, for example, "was put on the back burner" even though the exam team still had unresolved questions, Kotz found.
Madoff's former finance chief, Frank DiPascali, is cooperating with prosecutors after pleading guilty in August to helping Madoff carry out his fraud. Madoff was asked in the interview whether he was concerned about DiPascali's testimony. His answer: "No, he didn't know anything was wrong, either."
Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system, Greenspan told the Council on Foreign Relations in New York.
“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”
At one point, no bank was considered too big to fail, Greenspan said. That changed after the Treasury Department under then-Secretary Hank Paulson effectively nationalized Fannie Mae and Freddie Mac, and the Treasury and Fed bailed out Bear Stearns Cos. and American International Group Inc.
“It’s going to be very difficult to repair their credibility on that because when push came to shove, they didn’t stand up,” Greenspan said.
Fed officials have suggested imposing a tax or requiring higher capital ratios on larger banks to ensure the firms’ safety and reduce some of the competitive advantage from the implied subsidy. Greenspan said that won’t work.
“I don’t think merely raising the fees or capital on large institutions or taxing them is enough,” Greenspan said. “I think they’ll absorb that, they’ll work with that, and it’s totally inefficient and they’ll still be using the savings.”
Really Arbitrarily
The former Fed chairman said while “just really arbitrarily breaking down organizations into various different sizes” goes against his philosophical leanings, something must be done to solve the too-big-to-fail issue.
“If you don’t neutralize that, you’re going to get a moribund group of obsolescent institutions which will be a big drain on the savings of the society,” he said.
“Failure is an integral part, a necessary part of a market system,” he said. “If you start focusing on those who should be shrinking, it undermines growing standards of living and can even bring them down.”
(Rep. Maxine Waters (D) of California Loses Temper as She Fields Questions About Credit Card Rates; Featuring Bank of America CEO Ken Lewis and Citigroup CEO Vikram Pandit.)
Ken Lewis, the embattled CEO of Bank of America Corp., is leaving the company, succumbing to nearly a year of strife that followed his company's acquisition of Merrill Lynch & Co.
The bank, the nation's largest by assets, said Wednesday that Lewis, 62, decided on his own to leave and would retire as CEO and also leave the company's board by the end of the year. The company did not announce a successor, saying one would be selected by the time Lewis steps down Dec. 31.
The fact that no succession plan was announced indicated that the Bank of America board did not expect Lewis' decision at this time. Nonetheless, the news, coming after shareholders had stripped Lewis of his chairman's title earlier this year, wasn't surprising because of the intense pressure he came under after the Merrill Lynch deal, including criticism about billions of dollars in bonuses given to Merrill Lynch employees.
Lewis had said he would stay on as CEO until after the company's financial problems were resolved, a process expected to take several years.
However, with the bank also under heavy criticism from government officials, Lewis was increasingly seen as vulnerable.
"He's had a big target on his chest for the whole Merrill Lynch deal, and I can only imagine the emotional stress he's endured " said Alan Villalon, senior research analyst at Minneapolis-based First American Funds, which owns Bank of America stock.
Bank of America spokesman Bob Stickler said Lewis wasn't asked to leave by the board or the bank's regulators.
"He made the decision himself," Stickler said, adding that Lewis informed the bank's board during an unscheduled meeting conducted by telephone Wednesday evening. "The board was surprised when Ken told them what he wanted to do."
Stickler said Lewis began thinking about stepping down after returning from vacation in August. Stickler said Lewis' decision was driven by the fact that the bank is in better shape to recover from the recession and because "I think he's just feeling a little burned out for pretty obvious reasons."
The Merrill Lynch deal was first questioned after Bank of America disclosed that Merrill's losses were far more than expected. Bank of America then asked for and got an additional $20 billion from the government, in part to offset those losses. The brokerage lost $15 billion in the fourth quarter and more than $27 billion for the year. Bank of America ultimately received $45 billion in government assistance.
But Lewis came under even greater attack after Merrill Lynch, with the knowledge of Bank of America executives, gave billions in bonuses to Merrill employees even as Bank of America asked for more bailout money from the government. The deal was forged a year ago at the height of the financial crisis and closed Jan. 1; the bonuses, which would normally have been paid in January, were moved up and paid out in December.
Months later, the criticism is still intensifying. New York Attorney General Andrew Cuomo in September subpoenaed five members of Bank of America's board as part of an investigation into the Merrill deal. Lewis' departure won't affect the investigation, Cuomo said in a statement.
Bank of America had settled a separate investigation last month into disclosures about the Merrill bonuses with the Securities and Exchange Commission, but a federal judge threw out that $33 million settlement, saying it was unfair and needlessly penalized the bank's shareholders. The judge ordered the case to go to trial Feb. 1.
Shares of Bank of America rose 23 cents to $17.15 in after-hours trading, after falling 24 cents to end the regular session at $16.92.
When the stock market peaked in October 2007, Bank of America stock was trading at about $53 a share. It then began a decline that accelerated with the financial crisis, and joined other big banks whose stocks fell into the single digits. Earlier this year, it fell to $2.53 a share before starting to recover.
Analysts said the bank would likely be pressed to quickly name Lewis' replacement.
"You can't leave a $3 trillion company in jeopardy without knowing who the CEO is until December," said Tony Plath, a finance professor at the University of North Carolina at Charlotte.
A possible candidate to replace Lewis is Brian Moynihan, head of the bank's consumer and small business banking unit, said Anthony Polini, an analyst at Raymond James who covers Bank of America.
Moynihan joined Bank of America in 2004 through the bank's acquisition of FleetBoston Financial. He served as president of Bank of America's global wealth and investment management operation before taking on his current role.
Another potential successor is Sallie Krawcheck, a former Citigroup chief financial officer who took over Moynihan's previous job in August.
Lewis, who was appointed CEO in 2001, was already dealing with a barrage of criticism before the company's annual meeting on April 29, but he and other bank executives were nonetheless stunned when shareholders voted to separate the jobs of chairman and CEO. The questions of how long Lewis would be able to hold on to his job began in earnest that day.
Lewis had said he wanted to remain CEO until the government loan was repaid and Bank of America turns around its operations after the end of the recession. But that could have been years, as the company and other banks have warned that they would continue to suffer loan losses because so many consumers are strapped for cash or unemployed.
"Ken has been pummeled by the institutional investors, he's been pummeled by the government, he's been criticized by his new board. It's coming at him from all directions," Plath said. "There's no way he can continue in his role as CEO."
Change to Win Investment Group, which holds about one half of 1 percent of the bank's shares and had called for Lewis' ouster earlier this year, in a statement called Lewis' departure "the overdue but inevitable result of the overwhelming shareholder opposition registered at Bank of America's 2009 annual meeting. "
"The onus is now on the board of directors to engage with shareholders to name a successor who can quickly restore the bank's credibility with investors, regulators and Congress," the group said.
Lewis joined North Carolina National Bank, a predecessor to NationsBank and later and Bank of America, in 1969 as a credit analyst in Charlotte, N.C. He rose through the ranks to succeed Hugh McColl Jr. as head of the bank; McColl, who built his bank through 70 acquisitions in the 1980s, sealed the deal that combined NationsBanks and Bank of America.
NY Times, Huffington Post---- Judge Rejects Settlement Over Merrill Bonuses A Federal District judge on Monday overturned a settlement between the Bank of America and the Securities and Exchange Commission over bonuses paid to Merrill Lynch executives just before the bank took over Merrill last year.
The $33 million settlement “does not comport with the most elementary notions of justice and morality,” wrote Jed S. Rakoff, the judge assigned to the case in federal court in Lower Manhattan.
The ruling directed both the agency and the bank to prepare for a possible trial that would begin no later than Feb. 1. The case involved $3.6 billion in bonuses that were paid by Merrill Lynch late last year, just as that firm was about to be merged with Bank of America. Neither company provided details of the bonuses to their shareholders, who voted on Dec. 5 to approve the merger.
The judge focused much of his criticism on the fact that the fine in the case would be paid by the bank’s shareholders, who were the ones that were supposed to have been injured by the lack of disclosure.
“It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against the management go away,” the judge wrote.
Bank of America has argued in its filings with the judge that it did nothing wrong in its disclosures.
The judge also criticized the S.E.C., which has been trying to step up the profile of its investigations unit. The judge quoted Oscar Wilde’s “Lady Windermere’s Fan” in the end of his ruling to say that a cynic is someone “who knows the price of everything and the value of nothing.”
The proposed settlement, the judge continued, “suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.”
The case before Judge Rakoff is just one of several investigations into the bank’s deal with Merrill. Andrew M. Cuomo, the attorney general of New York, is also investigating the bank’s disclosures of bonuses and of Merrill’s surprise losses late last year. The House Committee on Government Oversight and Reform is also looking into the merger.
It is not the first time Judge Rakoff has ruffled feathers in the business world. In 2003, for example, he refused to approve what he saw as a low settlement the S.E.C. had negotiated with WorldCom, the phone company that collapsed in an $11 billion accounting fraud.
Rewarding — and punishing — the right parties was at the fore of the judge’s thinking in that case. Shareholders of WorldCom had already lost out. So when the judge forced the S.E.C. to increase the $500 million fine it was levying against WorldCom to $750 million, he also demanded that the money be paid out to the company’s shareholders, rather than to the agency.
Welcome to the BLACK POLITICAL BUZZ Blog. (Established 2008)
My name is Laurel. (Author & Publisher)
I Blog with a focus on POLITICS, Business, and occasionally Entertainment.
FACTS ABOUT LAUREL:
Wife,
Mother of a U.S. Soldier,
Sister,
Woman of GOD,
Loyal Friend,
Creative,
Blood-related to a nationally known Charlotte Politician.
Black Female, Intelligent,
Married,
Love to Travel,
Credentialed by the RNC and DNC.
Political Blogger/ Commentator
Grassroots Activist,
PROFESSIONAL STATUS:
Credential Political Blogger/ Commentator,
Registered Independent Voter
Original Native of BROOKLYN, NY
Currently reside in CHARLOTTE, NC
I’m Nice but don’t get it twisted because my Mind is Sharp!
Since You’ve Chosen to Visit and Read the Contents of this Blog by Personal Choice, and of Your Own Free Will,
Please don’t ask me to Compensate you for Expressing individual commentary/ Posted Articles, which are protected by the First Amendment, citing Freedom of Speech & Freedom of Expression.
No Intentionally Malicious Slander, Libel or Defamation of Character content will be published and I will always Credit all Sources.
NOTE TO ALL ELECTED OFFICIALS, APPOINTED OFFICIALS & PUBLIC FIGURES:
Per the Landmark U.S. Supreme Court Case: 1964 case of New York Times v. Sullivan………
The Public has a Right to Criticize the People who Govern them, so the least Protection from Defamation is given to Public Officials. When officials are accused of something that involves their behavior in office, they have to prove all of the above elements of defamation and they must also prove that the defendant acted with “actual malice.” (For a definition of actual malice, see the “History of Defamation and the First Amendment, below.”)
People who aren’t Elected but who are Still Public Figures because they are influential or famous — like Actors, Actresses, Movie Stars, Singers & Entertainers, Journalists, TV Hosts, Bloggers, etc., — also have to Prove that Defamatory statements were made with Actual Malice, in most cases.
To the Associated Press and other Media Organizations:
When I use your Content Links., I’m also citing the Fair Use Doctrine (Title 17 U.S.C. Section 107) for further Copyright permission.
Posts and Links published on Black Political Buzz are not endorsed by Black Political Buzz Blog Author Laurel’s Employer, nor the Employers of other Black Political Buzz employees.
This includes Links, Posts and Comments posted on Black Political Buzz’s Facebook and Twitter account pages.
Comments, Links and Opinions of site visitors are Independently-Owned and not endorsed by Black Political Buzz employees, Blog Author Laurel or Laurel’s Employer.)
(No Personal Offense intended) Please know that Black Political Buzz is not responsible for nor do I endorse Requests for Donations from Third Parties on this Blog.
I will Only Endorse Requests for Donations made on behalf of BLACK POLITICAL BUZZ Blog for Business Purposes & Operating Expenses.
I will also Only Endorse Requests for Donations on behalf of Legitimate Politicians and Legitimate Political Candidates. PERIOD!!
If anyone else or another Organization wishes to post a link to Request Donations, I am NOT endorsing ANY of those Requests!
Unless I receive a personal Request to do so and I have Professionally Confirmed that the Third Party Organization or Charity is indeed a Legitimate Entity.
NOTE: Anyone who chooses to give to any Third Party Organization NOT Endorsed by BLACK POLITICAL BUZZ is doing so at his or her own risk.
BLACK POLITICAL BUZZ does NOT Discriminate against Politicians, Political Candidates, Organizations or Charities based on Race, Color, Nationality, Ethnicity, Gender, Sexual Orientation, Religion, Faith, Disability, Political Affiliation, Creed, Education, Social Status, Age.
This disclaimer applies to ANY and All requests for Donations on this Blog. Thanks for understanding. Again No Personal Offense intended.
For Story Tips….Corrections…….. or Requests for Endorsements:
Please contact me via e-mail: blackpoliticalbuzz@gmail.com
or via my Facebook page: facebook.com/blackpoliticalbuzz
Thanks for stopping by
God Bless
Laurel @BLACK POLITICAL BUZZ
LINKS: POLITICAL PERSPECTIVE & INFORMATIONAL SITES
.jpg)
