Judge rejects to dismiss fraud case against Countrywide executives

 U.S. District Judge John Walter in Los Angeles declined a request submitted by Angelo Mozilo, the former chief executive of mortgage lender Countrywide Financial Corp, as well as David Sambol and Eric Sieracki, respectively Countrywide's former chief operating officer and former chief financial officer, to dismiss a U.S. Securities and Exchange Commission lawsuit. The SEC charged Mozilo with securities fraud and insider trading.

Mozilo's lawyer David Siegel said the court ruling was "disappointing" but added he was confident Mozilo "will be vindicated once the complete record is presented to the court..."

The case was launched by the SEC in June on accusations the defendants were misleading investors about the quality of Countrywide's loans, including tens of billions of dollars of risky subprime and adjustable-rate mortgages.

"The specific allegations of the complaint relied on by the SEC describe in great detail the virtual abandonment of prudent underwriting guidelines and the resulting proliferation of poor quality loans, during the same period Countrywide was touting the superior quality of its underwriting guidelines and its loan portfolio," the judge wrote.

"Moreover, given that Countrywide's core business, i.e., selling mortgages into the secondary market, admittedly depended upon the quality of its loan production, it is certainly not difficult for the court to conclude that the poor quality of Countrywide's underwriting practices and loan portfolio would be material to investors," he added.

The insider trading charge concerned Mozilo's alleged exercise in 2006 and 2007 of more than 5.1 million stock options and sale of the resulting shares, leading to more than $139 million of profit.