Judge Says Countrywide Officers Must Face Suit by Shareholders

[Eugene]

Source: New York Times

Judge Says Countrywide Officers Must Face Suit by Shareholders

By GRETCHEN MORGENSON
Published: May 15, 2008

Directors and officers of Countrywide Financial, the
beleaguered mortgage lender, must answer shareholder
accusations of insider trading and an overall failure to
monitor lending practices that led to the company’s collapse,
a federal judge in California has ruled.

Rejecting the arguments of Countrywide executives and directors
that they were unaware of lax loan operations that led to
ballooning defaults, Judge Mariana R. Pfaelzer of Federal
District Court in Los Angeles ruled Tuesday that she found
confidential witness accounts in the shareholder complaint
to be credible and that they suggested “a widespread company
culture that encouraged employees to push mortgages through
without regard to underwriting standards.”

Plaintiffs also identified “numerous red flags” that would have
warned directors of increasingly risky loans made by Countrywide,
according to the judge, who rejected a motion to dismiss the
suit. “It defies reason, given the entirety of the allegations,”
Judge Pfaelzer wrote, “that these committee members could be
blind to widespread deviations from the underwriting policies
and standards being committed by employees at all levels. At the
same time, it does not appear that the committees took corrective
action.”

Hundreds of mortgage companies have failed in the last year or
so, but few executives or directors have taken responsibility.
That makes the ruling significant, said Blair A. Nicholas,
one of two lawyers at Bernstein Litowitz Berger & Grossmann
representing the plaintiffs.

-snip-

Read more: http://www.nytimes.com/2008/05/15/business/15countrywide.html?partner=rssnyt&emc=rss

[Crabby Appleton]

1. Good! nt