The Wall Street Journal this morning reports that the Securities and Exchange Commission has now explicitly alleged what that newspaper and the now-defunct Conde Nast Portfolio magazine exposed two years ago: industry-leading Countrywide made loans on favorable terms outside its own guidelines to the politically powerful, just as mortgage boiler rooms and government regulatory laxity were fueling the impending crash.
The SEC’s statements came in a filing last week in the already-pending securities fraud case against former CEO Angelo Mozilo and other top executives. It’s the first time, the Journal reports, that the SEC has included the so-called “Friends of Angelo” program as part of the alleged fraud on shareholders.
The two-year-old press accounts get new, rock-solid support in the SEC filing from the testimony of former top Countrywide executive-turned whisteblower John McMurray, who was a key figure in the original SEC charges (see this 2009 Reuters story for more on him):
Mr. McMurray recounted two emails from Mr. Mozilo, one to the effect that “What is McMurray doing looking at this loan? I’ve already approved it.” The other email, Mr. McMurray recalled, said “You know, with x-hundred billion-dollar balance sheet, it seems like we could find room for one loan.”
The latest SEC filing apparently doesn’t name names, but the press already has. This groundbreaking WSJ story in June 2008 by Glenn R. Simpson (who’s since left the paper) and James R. Hagerty reported that among Countrywide FOA beneficiaries were James Johnson, a longtime Democratic honcho, and Franklin Raines, a onetime Clinton administration budget director, who left Fannie Mae amid an accounting scandal in 2004. Johnson resigned as an adviser to Barack Obama’s campaign right after that story.
Portfolio‘s Dan Golden (a former WSJer and Pulitzer winner) advanced the ball by putting sweetheart loans to Democratic Senate bulls Chris Dodd and Kent Conrad, among others, in the spotlight.
These were examples of accountability reporting of the highest order. Golden then topped himself with this tour de force that revealed the sprawling nature of the favor-peddling, roping in Clinton administration figures Henry Cisneros and Paul Begala, Congressional staffers involved in housing issues, and CEOs of companies that did business with Countrywide, including former C.E.O.’s William Esrey of Sprint, which provide mortgage info on cellphones to Countrywide borrowers, and Bruce Karatz of KB Home, which steered clients to the lender, and others.
The story is well worth revisiting, at least for the lede anecdote that shows Mozilo personally intervened, over the questions of a subordinate, to approve a loan outside Countrywide guidelines for an California appellate judge with a consumer class-action case against Countrywide pending before his court. The judge didn’t disclose the relationship or recuse himself, Golden reported, and then joined the other two judges in rejecting the consumers’ case.
Golden added helpfully:
California’s judicial code of ethics states that judges cannot accept gifts or favors from donors “whose interests have come or are reasonably likely” to come before them, nor can they take out a loan at better terms than are available to other borrowers. Reached by phone, [the judge, Richard] Aldrich denied receiving a below-market loan and hung up.
Our Ryan Chittum at the time wrote that the series pointed toward an editorial way forward for a magazine that lacked a clear identity and reason to be. Too bad it didn’t follow it.
There was other strong press work on the FOA story as well.
The SEC’s filing reminds us of the symbiotic relationship between accountability journalism and effective government oversight.
You can have one without the other, but it’s better to have both.
Dean Starkman Dean Starkman runs The Audit, CJR’s business section, and is the author of The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.