SEC CHARGES FORMER COUNTRYWIDE EXEC WITH FRAUD.

The National Law Journal reports that the Securities and Exchange Commission has charged former Countrywide CEO Angelo Mozilo, along with two other executives, with securities fraud and insider trading. This marks the first time that the CEO of a major financial institution at the heart of the housing bubble has been charged with fraud.

The SEC accuses the three senior executives of misleading the market by falsely assuring investors that Countrywide was primarily a prime quality mortgage lender. It alleges that they wrote excessively risky loans that they knew mortgage holders wouldn't be able to pay. The SEC slapped Mozilo with the additional insider trading allegations because it says he reaped nearly $140 million in profits for selling Countrywide stock on non-public information.

Countrywide played a large, norm-setting role in the subprime mortgage market and all the questionable practices that go along with it. Indymac, the first bank to fail outright as a result of risky housing lending, was a former subsidiary of the company that had been spun off.

Another wrinkle in the case is the infamous "Friends of Angelo" program, where VIPs like Senators Chris Dodd, Kent Konrad and former HUD Secretary Alphonso Jackson could recieve discounted mortgages from Mozilo's firm. While this case doesn't seem to have anything to do with that program, having Mozilo in the news again is particularly bad news for Dodd, who is facing a tough reelection thanks in large part to his percieved coziness with the financial sector. A GAO report earlier this week had us talking about the failure of the SEC to take effective enforcement action under eprevious Chairman Chris Cox; it's pretty clear that the new Chair, Mary Schapiro, has different plans.

-- Tim Fernholz