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» VISIT US ONLINE @ DSNEWS.COM 47 47 COVER STORY M ARKET PUL SE INDUSTRY INSIGHT INDUSTRY INSIGHT Angelo Mozilo is tanned and ready for his close-up. But the man once referred to as "Mr. Subprime" himself is long past his Hollywood-star turn as CEO of the now defunct subprime lender Countrywide. With reports of a possible Department of Justice lawsuit pending against Mozilo for his role in the subprime lending crisis, the former CEO's face is one many would prefer to forget. A sense of reticence even emerges when his name is brought up in certain circles. When asked about Mozilo and the possibility of a federal case against the executive for fraud, industry professionals and former government housing officials shut down. eir reluctance pales in comparison to the many calls to see Mozilo's head roll in the wake of the crisis. "In looking at the intervening years, I've seen a dismal record on the part of the government in taking an appropriately punitive stance against those who were principally responsible," said two-time presidential candidate and former member of the House Committee on Government Oversight and Reform, Dennis Kucinich. "Big fines to big companies without the individuals who were in charge of those companies having to be accountable under the law doesn't cut it. "e trillions of dollars of wealth that just disappeared overnight dealt a blow to Main Street that people still haven't recovered from and some never will never recover from." "Some poor soul who shoplifts a candy bar could end up spending more time in jail than someone who helped destroy the economy through fraud. When you put it in perspective you would think that the more people affected by a crime, the greater the personal accountability has to be on the part of those who enriched themselves and hurt others." "[C]ertainly many people have lamented the lack of criminal charges against high-level executives involved in the financial crisis," said David Kwok, assistant professor of law at the University of Houston Law Center and noted expert in the areas of white collar crime and public policy. "e challenge in bringing criminal fraud charges against executives is two-fold. First, to satisfy criminal charges, courts typically require that prosecutors prove beyond a reason- able doubt that the defendant executive knew they were committing fraud. It is generally in- sufficient to show that an executive was aware of a risk of fraud, unless the executive delib- erately avoided learning about the fraud (os- tensibly to avoid prosecution). Second, courts require that the counter-party be deceived. A common defense to fraud allegations is that the counter-party was aware of the true nature of the transaction and thus was not deceived." And therein lies the rub, professor Kwok notes. In an environment ripe with confusion over who fed the subprime crisis, someone like Mozilo may have stacked the deck against Fannie, Freddie, HUD, and private investors by selling them junk mortgages, but it is much harder to prove in the securities context. is paradigm alone makes the possible pending lawsuit against Mozilo a contentious topic in the banking industry. If the DOJ has found a way to put Mozilo in the hot seat, how are they doing it, and how are they meeting what seemed to be a difficult standard of proof? "As applied to the financial crisis, it is difficult to prove what a particular executive knew about the excessive risks in subprime mortgages. Multiple layers of management, organization, and risk management can make it difficult to demonstrate actual knowledge," Kwok added. "Moreover, because so many parties were allegedly involved in these mortgages, there is more room to argue that counter-parties in transactions were aware of these excessive risks and thus were not defrauded." In other words, Mozilo may be a good person to blame. He was the notorious Countrywide CEO and a mortgage banking star for years; but when the idea of prosecution sets in, everyone gets tongue-tied. And remembering Mozilo is to contemplate the fall of a subprime lending superstar, who captured everyone's attention until allegations of fraud began surfacing left and right. Enough whistle-blower lawsuits have stood the test of time to suggest Countrywide was possibly hiding critical facts about its home loans while defrauding the government. In many cases, Bank of America, who acquired Countrywide in 2008, has been the one left to pick up the pieces.

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