As expected, the SEC filed a civil fraud lawsuit today against Countrywide Financial CEO Angelo Mozilo. A news conference is scheduled for this afternoon in Washington. The agency has been investigating whether Mozilo and others failed to inform shareholders bbout lax lending standards. The feds are also looking into Mozilo's sale of hundreds of millions of dollars in stock in 2006 and 2007. (LAT)

*Also named in the complaint are David Sambol, chief operating officer and president, and Eric Sieracki, chief financial officer. From the press release:

This is the tale of two companies," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Countrywide portrayed itself as underwriting mainly prime quality mortgages using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk. Angelo Mozilo privately described one Countrywide product as 'toxic,' and said another's performance was so uncertain that Countrywide was 'flying blind.'"

Here's the complaint and SEC press release. Key passages in the SEC complaint:

Countrywide developed what was referred to as a "supermarket" strategy, where it attempted to offer any product that was offered by any competitor. By the end of2006, Countrywide's underwriting guIdelines were as wide as they had ever been, and Countrywide was writing riskier and riskier loans. Even these expansiveunderwriting guidelines were not sufficient to support Countrywide's desired growth, so Countrywide wrote an increasing number of loans as "exceptions" that failed to meet its already wide underwriting guidelines even though exception loans had a higher rate of default.

Countrywide was more dependent than many of its competitors on selling loans it originated into the secondary mortgage market, an important fact it disclosed to investors. But Mozilo expected that the deteriorating quality of the loans that Countrywide was writing, and the poor performance over time of those loans, would ultimately curtail the company's ability to sell those loans in the secondary mortgage market. Mozilo and the company's chiefrisk officer warned Sambol and Sieracki about the increased risk that Countrywide was assuming. Thus, each ofthe defendants was aware, but failed to disclose, that Countrywide's current business model was unsustainable.

Mozilo, Sambol, and Sieracki were responsible for Countrywide's. fraudulent disclosures. From 2005 through 2007, these senior executives misled the market by falsely assuring investors that Countrywide was primarily a prime quality mortgage' lender which had avoided the excesses ofits competitors. Countrywide's Forms 10-K for 2005,2006, and 2007 falsely represented that Countrywide "manage[d] credit risk through credit policy, underwriting, quality control and surveillance activities," and the 2005 and 2006 Forms 10-K falsely 27 stated that Countrywide ensured its continuing access to the mortgage backed 28 securities market by "consistently producing quality mortgages."

In fact, the credit risk that Countrywide was taking was so alarming to Mozilo that he internally issued a series ofincreasingly dire assessments of various Countrywide loan products and the risks to Countrywide in continuing to offer or hold those loans, while at the same time he,·Sambol, and Sieracki continued to make public statements obscuring Countrywide's risk profile and attempting to differentiate it from other lenders. In one internal email, Mozilo referred to a particularly profitable subprime product as "toxic," and in another he stated that the company was "flying blind," and had "no way" to predict the performance of its heralded product, the Pay-Option ARM loan. Mozilo believed that the risk was so high and that the secondary market had so mispriced Pay-Option ARM loans 11 that he repeatedly urged that Countrywide sell its entire portfolio of those loans. Despite their awareness of, and Mozilo's severe concerns about, the increasing risk Countrywide was undertaking, Mozilo, Sambol, and Sieracki hid these risks from the investing public.