Angelo’s escape

Cite this Article
Larry Ribstein, Angelo’s escape, Truth on the Market (February 23, 2011),

So Mozilo won’t be criminally prosecuted for Countrywide.  Holman Jenkins writes in today’s WSJ:

The incentive to bring a case against a vilified public figure, of course, is huge. Weighed against this, however, must be the chance of being humiliated by a judge, possibly censured, now that the legal system has started blowing the whistle on cases that strain to arrange the ill- fitting garments of criminal law around business defendants. * * *

Mr. Mozilo’s first thank-you note should probably go to Mark Belnick, the former Tyco executive whom a jury found did not commit “grand larceny” by accepting a bonus authorized by the company’s CEO. Mr. Belnick’s acquittal in 2004, in retrospect, was a harbinger.

There followed a pair of stock-option backdating cases thrown out by judges on grounds of “prosecutorial misconduct” that amounted to trying to make innocuous behavior appear nefarious. Two Bear Stearns executives were acquitted of the non-crime of losing money in the housing bubble. Capping off the trend was a Supreme Court decision last year disarming the “honest services” blunderbuss, which threatened to turn any self-interested behavior by a CEO into a crime.

Jenkins explains that Mozilo’s supposed crime was trafficking in “whatever types of loans seemed to be acceptable in the marketplace to consumers and sellable to Wall Street as securities.” Mozilo basically got caught in a bubble.  He expected the company to be around to “pick up the pieces when the ‘innovators’ had exited,” as Jenkins says. He didn’t foresee “unprecedented collapse in home prices” or “Countrywide’s own funding drying up overnight.”

So Mozilo avoided jail for following the crowd and not foreseeing the unexpected.  That left him better off than Jeff Skilling or Ken Lay.  Hopefully this prosecutorial forbearance will become a trend.  But based on the incentives and institutions I discuss in my Agents Prosecuting Agents, I’m not so sure about that.