The next time you're brave enough to open your brokerage statement, think about Angelo Mozilo, Bruce Karatz and Chad Dreier. They're all current or former CEOs of major L.A.-area companies who made more than $100 million during the housing bubble. Let me repeat - more than $100 million. A WSJ analysis found a bunch of other corporate chieftains of large home-building and financial-services firms who made huge and arguably outrageous fortunes.
Some experts say huge paydays inevitably coincide with economic booms. In the tech bubble of the late 1990s, more than 50 individuals each made more than $100 million from selling shares just prior to the crash. Many had just founded companies that had never turned a profit. "The system tends to reward people for participating in bubbles," says Roy C. Smith, a finance professor at New York University's business school. Mr. Smith, a former partner of Goldman Sachs Group Inc., says that almost nobody anticipated the recent collapse.
Mozilo, former CEO of Countrywide Financial - now part of Bank of America - realized $471 million over the period between July 1, 2003 and June 30, 2008. He defended his pay before Congress earlier this year, saying his compensation was tied to performance (though he is still being investigated by the FBI). Karatz, former CEO of homebuilder KB Home, made $191.8 million between 2003 and 2008. Karatz resigned under fire two years ago when he was implicated in a scheme to backdate stock options. In September, he agreed to pay more than $7 million to settle charges from the SEC. Least known of the trio is Chad Dreier, chairman and CEO of Calabasas-based Ryland Group, another major homebuilder. He made $181 million over the five-year period.
Mr. Dreier's bonuses, many tied to short-term profits, totaled $31.2 million in 2005 and 2006 alone. Ryland paid him another $20.5 million over the five years to cover some of his tax bills. He made another $85 million from stock sales, most of them regularly scheduled. Next door to his 4,900-square-foot hilltop house in Santa Barbara, a Dreier private company owns an office building that houses Mr. Dreier's collection of baseball cards, sports memorabilia, gems, minerals and other items. State records say he owns several cars, including a 2004 Porsche coupe worth $448,000.
To be fair, Dreier's compensation has taken a dip given the market decline (Ryland is trading for around $12 a share, which is down from its 52-week high of $37.85). Actually, most of those at the top of the list retained far more shares than they sold, meaning that their paper losses exceed the amount they took out of their companies. Still, there's no denying the crazy amounts that they did take out.
Perhaps most outrageous were the millions made by Robert K. Cole, Edward Gotschall and Brad Morrice, the three founders of OC-based subprimer New Century Financial.
Over four years, the three executives received cash compensation and stock proceeds totaling $74 million, including estimates of their 2006 pay cited in a report by a court-appointed investigator after the company filed for bankruptcy protection. Mr. Cole, who was CEO for some of the period, lives in a 9,200-square-foot oceanfront home in Laguna Beach, Calif., that has a tax value of $30 million.
In 2007, New Century filed for bankruptcy protection – and in March, the court-appointed investigator filed a report in U.S. Bankruptcy Court in Delaware, alleging that the company engaged in imprudent business practices and improper accounting. Its accounting practices are now under investigation by the SEC.