Former Countrywide Financial CEO Angelo Mozilo and two other former executives have been charged with securities fraud.

The Securities and Exchange Commission charged yesterday that Mozilo along with former chief operating officer and president David Sambol and former chief financial officer Eric Sieracki deliberately misled investors about the significant credit risks being taken in efforts to build and maintain the company's market share. Mozilo was additionally charged with insider trading for selling his Countrywide stock based on nonpublic information for nearly $140 million in profits.

Through his attorney, Mozilo called the charges "baseless." Reports also said Sieracki's lawyer said his client is innocent. Sambol's attorney did not respond to calls for comment.

The SEC alleges the three men misled the market by falsely assuring investors that Countrywide was primarily a prime quality mortgage lender that had avoided the excesses of its competitors.

The SEC's enforcement action alleges that from 2005 through 2007, Countrywide engaged in an unprecedented expansion of its underwriting guidelines and was writing riskier and riskier loans, which these senior executives were warned might ultimately curtail the company's ability to sell them. Countrywide was required to disclose these important trends to its investors in the Management Discussion and Analysis portion of its SEC filings, but failed to do so.

The SEC alleges that Mozilo, Sambol, and Sieracki actually knew, and acknowledged internally, that Countrywide was writing increasingly risky loans and that defaults and delinquencies would rise as a result, both in loans that Countrywide serviced and loans that the company packaged and sold as mortgage-backed securities.

According to the SEC's complaint, Countrywide developed what was internally referred to as a "supermarket" strategy that widened underwriting guidelines to match any product offered by its competitors. By the end of 2006, Countrywide's underwriting guidelines were as wide as they had ever been, and Countrywide made an increasing number of loans based on exceptions to those already wide guidelines, even though exception loans had a higher rate of default.

The SEC's complaint alleges that Mozilo believed that the risk was so high that he repeatedly urged that Countrywide sell its entire portfolio of Pay-Option loans. Despite these severe concerns about the increasing risks that Countrywide was undertaking, Mozilo, Sambol, and Sieracki hid these risks from the investing public.

The SEC further alleges that Mozilo engaged in insider trading of Countrywide stock that he owned. Mozilo established four executive stock sale plans for himself in October, November, and December 2006 while he was aware of material, nonpublic information concerning Countrywide's increasing credit risk and the expected poor performance of Countrywide-originated loans. From November 2006 through August 2007, Mozilo exercised more than 5.1 million stock options and sold the underlying shares for total proceeds of nearly $140 million, pursuant to written trading plans adopted in late 2006 and early 2007.

The SEC's complaint seeks permanent injunctive relief, officer and director bars, and financial penalties against all of the defendants and the disgorgement of ill-gotten gains with prejudgment interest against Mozilo and Sambol.