The US justice department is poised to announce a $16.65 billion settlement with Bank of America over accusations that it duped investors into buying toxic mortgage securities, say people briefed on the matter - the single largest government settlement by a company in US history.
Yet even as that accord nears completion, prosecutors are readying a separate civil case against Angelo Mozilo, the man who came to embody the risk-taking for which Bank of America is now paying dearly, a rare move against a senior executive at the center of the financial crisis.
The settlement will be a coda to a painful period for the bank and the broader financial industry. More than any other Wall Street giant, Bank of America was the source of the toxic subprime loans that helped ignite the crisis - the result of the bank's acquisitions of Mr Mozilo's Countrywide Financial and Merrill Lynch. The size and scope of the expected settlement, which could be announced as soon as today, reflects the extent of the damage.
The deal would resolve more than two dozen investigations from prosecutors across the country, the people briefed on the matter said, including New York, Los Angeles, New Jersey and North Carolina. To settle those varied investigations, some of which have not been previously reported, the bank is expected to pay a $9.6 billion cash penalty and $7 billion in so-called soft-dollar payments to aid struggling consumers. In turn, the justice department will forgo any potential cases against the bank over collateralised debt obligations, the people said, complex financial instruments the bank sold in the years before the crisis. While no bank executives will face charges as part of the settlement, the people said, the prosecutors in Los Angeles are preparing a lawsuit against Mr Mozilo, Countrywide's co-founder.
Mozilo, who previously reached a $67.5 million settlement with the Securities and Exchange Commission, was an early target of the justice department.
In 2011, the US attorney’s office in Los Angeles decided not to file criminal charges against Mozilo. But in recent months, the office’s civil division has turned the spotlight back on Mr Mozilo, whose company originated mortgages that went to people with little income to repay them, causing devastating losses for investors who bought the loans. But a complication has emerged: Mozilo’s lawyers have told the prosecutors in Los Angeles that their client is battling a serious illness. Prosecutors have sought Mozilo’s health records, the people said, though for now the case remains on track.
In a statement, Mr Mozilo’s lawyer said that he would “not comment on reported rumors concerning any investigation.”
He added, however, that “there is no sound or fair basis, in law or fact, to pursue any claim against Angelo Mozilo. This story has gone on more than long enough; Mr. Mozilo stands virtually alone among banking and mortgage executives to actually have been pursued by this government and already paid a record penalty” to the SEC.
Bloomberg News earlier reported the plans to file a lawsuit. The persistent focus on Mr Mozilo (75) stems from Countrywide's outsize role in the mortgage crisis. The son of a Bronx butcher, Mr Mozilo amassed great wealth as Countrywide became the nation's largest mortgage lender. After Bank of America bought the company in 2008, the decision set off years of legal woes.
New York Times
