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Co-founder of the biggest home mortgage lender in US charged with fraud

Angelo Mozilo, founder of Countrywide Financial, which was once the most prolific sub-prime lender in the US, is the first big company chief executive to be charged over the credit crisis which led to the collapse of the US property market.

The US Securities and Exchange Commission confirmed that it has charged Mozilo and his two most senior lieutenants, former chief operating officer David Sambol and former chief financial officer Eric Sieracki, with deceiving investors.

It is claimed that Mozilo knew as early as 2006 that his company was offering riskier and riskier loans to ever riskier borrowers and that over zealous employees were selling mortgages that breached even the company's own guidelines.

The commission made public emails from 2006 in which Mozilo described many of his company's loans as 'toxic' and as 'poison'.

'We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet. The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales,' said one.

Although it is not possible to say at this stage how different the property collapse might have been if Countrywide had not been aggressively granting sub prime loans, its activities cannot be overlooked. When customers defaulted in record numbers, the losses spread across the globe.

'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,' said Robert Khuzami, director of the SEC's enforcement division.

Mozilo is also charged with insider trading by selling $140 million in Countrywide shares at the end of 2006 and early 2007. Countrywide, which was co-founded by Mozilo in California in 1969, collapsed last year and was sold to Bank of America, which has now ditched the name.

All three are expected to deny the charges.

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