The Securities and Exchange Commission announced on Thursday it has filed civil-fraud charges against former Countrywide Financial CEO Angelo Mozilo in what would be the highest-profile government legal action against a chief executive that has arisen so far from the financial crisis.

Mozilo was charged with “deliberately misleading investors about the significant credit risks being taken in efforts to build and maintain the company’s market share,” as well as with insider trading, according to the SEC.

• READ the SEC's Complaint Against Mozilo
• READ Statement From an SEC Director on the Charges

Former Chief Operating Officer and President David Sambol and former Chief Financial Officer Eric Sieracki were also named by the SEC, which alleges that they “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 released emails in which Mozilo referred to certain mortgage products as “poison” and “toxic” at the same time Countrywide was making riskier and riskier moves with its lending operations.

“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 SEC Enforcement Director Robert Khuzami.

The SEC particularly criticized Countrywide’s use of so-called pay-option mortgages, which let borrowers pick their monthly payments levels even if those payments don’t cover the interest charges.

Also, Mozilo was widely criticized for selling some Countrywide stock for $140 million in profits by exercising 5.1 million options and selling the underlying shares -- in 2006 and 2007, just as the mortgage market topped out -- under a so-called executive sales plan, which was legal under federal securities rules.

Mozilo had modified the executive sales plan in late 2006 to accelerate his stock sales. Critics say he sped up them up because he was aware of problems at Countrywide.

Mozilo's lawyer, David Siegel, said in a statement Thursday evening that “Mr. Mozilo acted properly and lawfully at all times as the CEO of Countrywide,” asserting that the stock “sales were entirely lawful, complied with applicable laws and regulations, and were made under the terms of a series of written sales plans which were reviewed and approved by responsible professionals."

Siegel said the allegations that Mozilo knew about problems at Countrywide and didn’t disclose them was “demonstrably false.”

He reportedly added: “The lawsuit filed today by the S.E.C. does not reflect a balanced or fair consideration of the facts or the law.”

Walter Brown, an attorney for David Sambol, said the SEC “has no case” against his client. “This baseless complaint against Dave Sambol is the result of the tremendous political pressure the SEC is facing given its well-publicized enforcement failures,” Brown said. Brown is a partner at Orrick, Herrington & Sutcliffe, LLP.

Nicolas Morgan, an attorney for Eric Sieracki, said "the lawsuit that the SEC filed today against Mr. Sieracki is completely without merit.  Mr. Sieracki did not violate any securities laws and committed no fraud on anyone."

Morgan continued, "Mr. Sieracki lost money just like all other investors in Countrywide stock when the credit markets seized up and real estate values declined.  He did not sell his Countrywide stock, rather he purchased  Countrywide stock during the time when the SEC wrongly alleges  Mr. Sieracki believed that Countrywide was withholding information from the market... We reject the allegations of the Complaint against Mr. Sieracki and we will defend the case vigorously."

The SEC reportedly sent Mozilo a so-called Wells notice -- a precursor to a civil lawsuit in an SEC investigation -- several weeks ago. The Wells notice outlines to an individual or company what charges might be filed and gives a target a chance to respond. It must be approved by SEC commissioners.

Mozilo has been in some ways a poster child of the housing boom and bust. He kept a high profile as Countrywide turned into the nation’s top mortgage lender at the height of the housing boom in the middle part of the decade. He was often in the media, and was known for his deep tan and snazzy wardrobe.

But then, he became a lightning rod for criticism when the housing bubble burst, not only for the company’s loose underwriting rules but because of his high pay levels.

Bank of America (BAC) purchased Countrywide for $2.5 billion, a transaction which closed in July 2008. Not long after the transaction closed, BofA agreed to a settlement of nearly $9 billion with state attorneys general regarding Countrywide’s lending practices.

Mozilo reportedly stood to gain between $80 million and $115 million in severance on the sale, according to various analyses. In January of 2008, however, Mozilo had said he would give up $37.5 million of that severance amount.

Excerpts of E-Mails From Angelo Mozilo

Sept. 26, 2006 – following up a meeting with Sambol the previous day about the Pay-
Option ARM loan portfolio:

We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet. The only history we can look to is that of World Savings however their portfolio was fundamentally different than ours in that their focus was equity and our focus is fico. In my judgement [sic], as a long time lender, I would always trade off fico for equity. 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.
…
… pay options are currently mispriced in the secondary market, and that spread could disappear quickly if there is an foreseen [sic] headline event such as another lender getting into deep trouble with this product or
because of negative investor occurance [sic].
…
“timing is right” … to … “sell all newly originated pay options and beginrolling off the bank balance sheet, in an orderly manner, pay optionscurrently in their port[folio].”

April 17, 2006 – to Sambol concerning Countrywide’s subprime 80/20 loans:

In all my years in the business I have never seen a more toxic prduct [sic].

It’s not only subordinated to the first, but the first is subprime. Inaddition, the FICOs are below 600, below 500 and some below 400[.]

With real estate values coming down…the product will becomeincreasingly worse. There has [sic] to be major changes in this program,including substantial increases in the minimum FICO. … Whether you consider the business milk or not, I am prepared to go without milk irrespective of the consequences to our production.

April 13, 2006 – to Sambol, Sieracki, and others to address issues relating to the 100
percent subprime second business in light of the losses associated with the HSBC
buyback:

Loans had been originated … “through our channels with disregard for process[and] compliance with guidelines.”
…
He “personally observed a serious lack of compliance within our origination system as it relates to documentation and generally a deterioration in the quality of loans originated versus the pricing of those loan [sic].”
…
“[i]n my conversations with Sambol he calls the 100% sub prime seconds as the ‘milk’ of the business. Frankly, I consider that product line to be the poison of ours.”

On March 28, 2006 – to Sambol and others:

Directed them to implement a series of corrective measures to “avoid the errors of both judgment and protocol that have led to the issues that we face today caused by the buybacks mandated by HSBC.” …

… The 100% loan-to-value subprime product is “the most dangerous product in existence and there can be nothing more toxic and therefore requires that no deviation from guidelines be permitted irrespective of the
circumstances.”