Legal 500

Topics: Ethics, Business ethics, Subprime lending Pages: 7 (2205 words) Published: July 15, 2012

Assignment 4 CASE

Dr. C. Phil Campos
Leg 500 Law, Ethics, and Corporate Governance
March 12, 2010

Countrywide was one of America's biggest sub-prime mortgage lender, until they were slapped with a prosecution for unethical business practices just hours before its shareholders were due to vote the company out of existence. “A business exists because of relationships between employees, customers, shareholders or investors, suppliers, and managers who develop strategies to attain success” (Fraedrich and Ferrell, 2010 p. 30). ”An organization usually has a governing authority often called a board of directors that provides oversight and direction to make sure that the organization stays focused on objectives in an ethical, legal, and socially acceptable manner” (Fraedrich and Ferrell, 2010 p. 30). “Stakeholders help to identify the internal stakeholders such as employees, board of directors, managers, and external stakeholders such as customers, special –interest groups, regulator, and others who agree, collaborate, and have confrontations on ethical issues” (Fraedrich and Ferrell, 2010 p. 30). “Stakeholders apply their values and standards to many diverse issues, working conditions, consumer rights environmental conservation, products safety and proper information disclosure that may or may not directly affect an individual stakeholder’s own welfare”( Fraedrich and Ferrell, 2010 p. 30). With Countrywide there are several stakeholders, the primary stakeholders are those whose continued association is absolutely necessary for the survival of the company. “They are the employees, customers, investors, and shareholders, as well as the government and communities that provide necessary infrastructure” (Fraedrich and Ferrell, 2010 p. 32). “Stakeholders provide both tangible and intangible resources that are more or less critical to a firm’s long-term success (Fraedrich and Ferrell, 2010 p. 50). Stakeholders define significant ethical issues in business.

“One of America's top mortgage tycoons, Angelo Mozilo, was charged with fraud and insider dealing for allegedly lying to investors about a toxic build-up of billions of dollars in reckless loans at his Countrywide Financial home loans empire” (, 2009 ). “He was Countrywide’s chief executive officer, he created a corporate culture focused on low-documentation and subprime mortgages”( Fraedrich and Ferrell, 2010 p. 209). The Securities and Exchange Commission (SEC) also flied fraud charges against two of his lieutenants, his former chief operating officer, David Sambol, and chief financial officer, Eric Sieracki. “The attorney general of Illinois, Lisa Madigan, announced she was filing a civil action against Countrywide for deceitful conduct and lax standards in the way it provided sub-prime mortgages to customers”(, 2009 ). The Securities and Exchange Commission launched a civil prosecution against Mozilo for making $140 million in profit by selling Countrywide stock in 2006 and 2007 while concealing a looming deterioration in the business's prospects from shareholders” (, 2009 ). “According to the SEC, Mozilo was assuring analysts that Countrywide had high quality control and tight risk monitoring. Mozilo is accused of ignoring warnings from his own risk officers about potential problems and of adopting a "supermarket" strategy whereby Countrywide matched any loan offered by a competitor, irrespective of underwriting standards” (, 2009 ). “One lawsuit alleged misconduct and disregard of fiduciary duties, including a lack of good faith and lack of oversight of Countrywide’s lending practices”( Fraedrich and Ferrell, 2010 p. 389). “The lawsuit also accused Countrywide of improper financial reporting and lack of internal controls, alleging that Mozilo was paid 10 million more than was disclosed”( Fraedrich and Ferrell, 2010 p. 389). “Additionally, the company...
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