Do The Right Thing: Money or Ethics?


The Chairman and CEO of Countrywide Financial, Angelo Mozilo, is currently being investigated for insider trading. He has cashed in $138 million in stock options and switched his trading plans multiple times as the mortgage company tumbled. He began a stock sale plan in October 2006 in a manner designed to protect him against accusations of insider trading. But Mozilo raised the number of shares that could be sold on two different occasions. The first time was in December 2006. Shares were over $40 and he almost doubled the shares he was able to sell per month. He did the same thing in February when they hit a high of $45.03. Mozilo sold 4.9 million Countrywide shares right before the market fell apart. Since then, shares in Countrywide have fallen to less than $19, and the company announced that second-quarter profits had declined by 33%.

Although we are still unsure that the timing of these sales and the changes to his trading plans were a mere coincidence, there have been many thoughts. According to Thom F. Carroll, a financial planner, “If a guy is changing his plan around so often in a short period, I would think that would send up a red flag. I wouldn’t allow my clients to do it.” However, Sandy Samuels, Countrywide’s chief legal officer, said “The trading plans were put into place in consultation with Mr. Mozilo’s financial adviser, without regard to any non-public or market information.”

The question whether it was illegal insider trading or if it was in fact “in accordance with company policy” has yet to be answered. However, it is clear that Mozilo did not “do the right thing.” Mozilo sold millions of shares right before Countrywide’s stock plunged.

Ironically, Barron’s listed Mozilo as one of the 30 most respected CEOs in the world for the past three years. Mozilo is very well respected and has won many awards. So, why would such a wealthy and well established man unethically, and borderline illegally, risk it all?

I think Mozilo’s choice to manipulate his trading plans to cash in just as the housing crisis was escalating and Countrywide’s stock was dropping was a mistake in itself. He lost all credibility and has brought a lot of negative publicity to the company. This will hurt both him and the company drastically.

The company recently said it will eliminate as many as 12,000 jobs in the coming months and its stock is down more than 50 percent from February. But, I think the most detrimental part will be Mozilo facing the unethical decisions he made. He simply can’t take these decisions back. When the sub-prime market does recover, his decisions won’t be forgotten. I believe Countrywide can recover, but Mozilo’s decisions will haunt him for a lifetime.

.                                                 The Times Online

.                                 Make-up Blog From Tuesday’s Class


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