Where's Mozilo Hiding?

Jay Mallin, Bloomberg News / Landov As the SEC files new fraud charges against the former Countrywide CEO, Alan Deutschman reports on the private jets, Lamborghinis, and country clubs he may have to give up.

The Securities and Exchange Commission on Thursday filed securities fraud charges against Countrywide Financial co-founder and former CEO Angelo Mozilo and two other former executives. A primary architect of the mortgage meltdown, Mozilo is already facing trial in Florida for his company’s allegedly deceptive practices, and now the SEC is accusing him of deliberately misleading investors, as well as insider trading.

Countrywide would lead its industry in a shocking lowering of lending standards—aggressively pushing outsized loans to people who couldn’t possibly afford them.

In recent months, Mozilo hasn’t been seen as much around Los Angeles’ hyperexclusive Sherwood Country Club, which he used for years to polish his golf game’s 15 handicap. Bonnie Russell, part of an anti-Mozilo protest group, tells me that his neighbors at the club say that Mozilo keeps a “low profile” and is “worried about going to jail.” That low profile, she says, involves remodeling one of his houses and “keeping up his tan.”

That perennially psychedelic tan, which rivals even George Hamilton’s, was part of the otherwise small Mozilo’s large reputation: his fancy suits and loud ties and shiny shoes, his cars (including a gold Rolls-Royce and a yellow Lamborghini Gallardo), and his jets (Countrywide flew him in its Gulfstream IV and V). But his reputation, and his company’s, are now in tatters. Countrywide, which Bank of America took over last summer and continues to struggle with, doesn’t even exist in name anymore—BofA has announced it is retiring the Countrywide brand name, even as it was saddled with billions of dollars in bad subprime loans. Not that Mozilo suffered much before the SEC filed its fraud charges: Although he agreed to forfeit $37.5 million in severance due from BofA as well as the use of the private planes (which the bank sold), he had already pocketed $410 million in compensation from 1999 to 2007.

Even if Mozilo, 71, can afford to retire in the style he’s accustomed to—the SEC is seeking financial penalties—it will be hard for him to get used to paying for things himself. This was a CEO who threatened his board that he might quit if they insisted that he and his No. 2 exec pay the income taxes on the costs of flying their wives with them at company expense on the Gulfstreams. And that $170,000 Lamborghini? Mozilo won it by buying a $1,000 ticket in a raffle at the Columbus Citizens Foundation’s black-tie charity gala at New York’s Waldorf-Astoria in 2005. This guy had amazing luck, though it looks like it may finally run out.

Now that furious bloggers have posted the address of Mozilo’s beach house in Montecito, California, the unrepentant mogul may be safest in his primary residence in a gated and guarded community in Thousand Oaks, California, in a small valley hidden amid L.A.’s Santa Monica Mountains. Mozilo lives with Phyllis, his wife of 50 years, in a massive house that backs on to a fairway of one of the two Jack Nicklaus-designed golf courses of Sherwood, where memberships have sold for as much as $500,000. Countrywide used to pay Mozilo’s $8,581 annual fees at Sherwood, one of several exclusive golf clubs where he belongs.

Before he became the poster boy for the nation’s economic crisis and the bane of Bank of America, Mozilo loved to retell his own Horatio Alger legend: Growing up in the Bronx as the eldest of five children of Italian immigrants, he slept on a sofa in the dining room. At 12, he began cutting up chickens and making sausage in his father’s butcher shop. At 14, he took a second part-time job as a messenger for a mortgage company in Manhattan, ultimately rising through the business while he earned degrees in philosophy at Fordham and business at NYU. He co-founded Countrywide in 1969 with his mentor David Loeb, and by 2000 they had built it into the nation’s No. 3 mortgage lender, eclipsing even the mighty Bank of America.

If the story had ended there, Mozilo might have been just another rags-to-riches tale. But that year, Loeb quit and the two men stopped speaking. Mozilo, free from the restraint of his more cautious partner, began driving relentlessly for Countrywide to dominate the mortgage business. “I’m perceived as a tough guy, a son of a bitch,” Mozilo told Forbes magazine that year, adding revealingly: “We’re going to be a major player—one way or another.” We now know that “one way of another” meant that Countrywide would lead its industry in a shocking lowering of lending standards—aggressively pushing outsized loans to people who couldn’t possibly afford them and then gouging those unsuspecting customers with punitively higher rates and fees (alleges the Florida lawsuit and many critics).

What explains the psychology behind Mozilo’s ill-fated drive for dominance? Often the reason why a CEO transgresses is because he’s doing whatever it takes to be the one survivor in a ruthless “winner-take-all” contest. That’s the situation in certain segments of the computer-software business, where one product rises and becomes the industry standard that almost everyone uses—and its producer enjoys a lucrative near-monopoly. In a fiercely competitive environment, it may be worthwhile for a CEO to risk the penalties from breaking the rules because the ultimate payoff is extraordinarily lucrative: Just ask Bill Gates whether the Microsoft’s windfalls were worth the trouble with the Justice Department, or ask Larry Ellison whether he’s sorry that the SEC made Oracle restate its earnings in the early 1990s after it was caught cooking the books in its all-out effort to convince Silicon Valley that its software had unstoppable market momentum.

Although Mozilo said in 2000 that the mortgage business was “winner-take-all,” it actually wasn’t. Even when Countrywide became the No. 1 lender, it captured only 15 percent of the huge market, far from the 30 percent that Mozilo had set as his hyperambitious goal.

I think that Mozilo fits better in the mode of that other remarkable Los Angeles-area tycoon, Michael Milken. Both men began as consummate outsiders who eclipsed the established financial giants with what might have been a legitimate innovation if handled more cautiously—offering credit to certain borrowers who wouldn’t have gotten it under the old system. But both men were carried away with their newfound power and pushed their innovation to dangerous extremes that wrecked havoc on the financial system, as furthered evidenced by the BofA stress test. Like Milken, Mozilo may also have shown open contempt for legal boundaries in the process. But now that’s for the SEC—and a jury of his peers in the bursted-bubble land of Florida—to determine.

Alan Deutschman is a Daily Beast columnist and a contributing editor at Vanity Fair, where he has co-authored its "New Establishment" power list for more than a decade. Previously, he was a senior writer for Fast Company and GQ (where he wrote the "Profit Motive" column) and Silicon Valley correspondent for Fortune. He is the author of three books: Change or Die, The Second Coming of Steve Jobs and A Tale of Two Valleys.