Well, it has finally happened. After selling his own stock like a bandit over the last year amid the biggest mortgage meltdown in history, someone in authority has finally decided to call Angelo Mozilo to the carpet for his brazen bender.
That’s because according to the allegations of North Carolina State Treasurer, Richard Moore, the Countrywide CEO decided a long time ago to protect his own house-not that his shareholders.
Moore, the trustee of a pension fund that holds about 500,000 shares of Countrywide stock (CFC: NYSE), cried foul last week to SEC Chairman Christopher Cox over the timing and volume of the insider’s sales.
In a letter to the SEC chairman dated October 8th Moore wrote that he was "shocked" to learn that Mozilo had "apparently manipulated his trading plans to cash in" as the sub prime crisis was just beginning to boil.
Mozilo Sheds 5 Million Countrywide Shares
Mozilo sold big as the stock dropped unloading some 4.9 million shares of the company that he founded between November 2006 and August 2007. In the process he banked some $138 million as his company’s share price stumbled and foreclosures went through the roof.
At issue Moore says isn’t the sales themselves but Mozilo’s tinkering with his own prearranged plan. Moore complains that at least three times over five months starting in October 2006, Mozilo changed his plan in order to sell his shares before they fell dramatically.
"As one of the many investors who have felt the painful losses in Countrywide stock I am outraged at his manipulation of the system and this abuse of shareholders," the state treasurer wrote. "The timing of these sales and the changes to the trading plans raise serious questions about whether this is mere coincidence."
The Selling Goes On
But unfazed by those allegations Mozilo continues to sell, insistent that there is "nothing to see here" after all.
In fact, on the very day that Moore released his allegations, Mozilo exercised options for 139,918 shares of common CFC stock for $9.34. He then dumped those same shares immediately thereafter netting a quick $1,315,229 in the ultimate show of disloyalty to his shareholders.
To Moore, however, that transaction was just simply the latest in a long line of insider sales. "While Countrywide shareholders have faced massive losses, Mr. Mozilo has been stuffing his pockets," Moore wrote.
Meanwhile, business only got worse last week at the nation’s largest lender as sales continued to fall and delinquencies skyrocketed. The percentage of those behind in their payments jumped to nearly 6% while new the funding of new loans dropped by 44% year over year.
Of course, if you had the full benefit of Mr. Mozilo’s 54 years of experience in the mortgage industry you could have seen those miserable figures coming from a mile away.
Or in this case, at least a full year before it happened. Somehow I doubt that Mr. Moore’s inquiry will be the last.
By the Way: Beazer Homes (BZH) continues to stagger along the long crooked path after its recent brush with bankruptcy rumors this summer.
According to a report released this morning, the company has asked its lenders to amend the terms of its $1.53 billion in debt so the homebuilder can avoid default due to its delinquent SEC filings.
One of the nation’s biggest builders, the company failed to complete its SEC required homework due to an internal investigation into problems in its mortgage-lending unit.
That investigation prompted the Atlanta-based builder last week to confess to the U.S. Department of Housing and Urban Development that it had indeed broken some of its regulations in regards to its origination of FHA loans dating back to 2003. Those errors the company said would force them to restate their earnings all the way back to 2004.
As a result, Fitch Ratings downgraded the company’s issuer default rating to BB- or speculative.
"There is uncertainty as to the financial impact of Beazer’s potential liability as well as regulatory fines related to the violations found in its mortgage subsidiary," Fitch said.
On a side note, cancellations in the homebuilding industry have gone from just merely awful to off the charts horrible. One builder, Comstock Homebuilding Co. reported that even though it sold 81 homes in the third quarter, 78 of those sales were canceled.
Meanwhile, Beazer itself reported a stunning cancellation rate of 68% for the quarter up from 36%.
The bottom in housing is no where in sight.
Wishing you happiness, health, and wealth,
Steve Christ, Editor