Justice Department Is Weighing Civil Suit Against Angelo Mozilo

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Angelo R. Mozilo, former chief executive at Countrywide Financial.Credit Kevin Lamarque/Reuters

Federal prosecutors are wrestling with whether to file a civil fraud lawsuit against Angelo R. Mozilo, the former chief executive of Countrywide Financial, which was at the center of the subprime mortgage boom and bust, people briefed on the matter say.

This summer, the United States attorney’s office in Los Angeles was said to be close to filing a lawsuit against Mr. Mozilo over his role in Countrywide’s sale of millions of mortgages to home buyers with questionable credit histories. Prosecutors there were planning to move forward with a civil fraud lawsuit nearly three years after it had abandoned a criminal investigation of Countrywide and Mr. Mozilo, the firm’s co-founder.

But Stephanie Yonekura, the acting United States attorney for the Central District of California, which includes Los Angeles, has had lingering questions about the litigation because of arguments raised by lawyers for Mr. Mozilo and other potential defendants, said the people briefed on the matter, who were not authorized to speak publicly about a current investigation.

One argument raised by lawyers for Mr. Mozilo and some of the other defendants is that a civil fraud lawsuit would duplicate the efforts of the Securities and Exchange Commission, which sued Mr. Mozilo and two other former Countrywide executives in 2009. On the eve of the trial in 2010, Mr. Mozilo and the other defendants reached a settlement with the agency that required the mortgage financier to pay $67.5 million in fines and restitution. In settling that securities fraud and insider trading case, Mr. Mozilo and the two other former Countrywide officials, David Sambol and Eric Sieracki, neither admitted nor denied liability.

In criminal law, a person generally cannot be charged with the same crime twice. There is nothing comparable in civil law, but the people briefed on the matter said lawyers for the defendants had claimed it would be unjust for two government agencies to bring two similar civil enforcement actions so many years apart.

David Siegel, Mr. Mozilo’s lawyer, said he would not comment on the investigations, “but we do hope that they will consider all of the circumstances.”

Mr. Mozilo did not return telephone calls to his home in California. But in an interview with Bloomberg News in September, he said he did not understand why the federal government was still pursuing him. “We didn’t do anything wrong,” he said.

Leon W. Weidman, the federal prosecutor who heads the civil division for the United States attorney’s office in Los Angeles and is overseeing the investigation of Mr. Mozilo, did not return telephone calls seeking comment.

Over the last several months, federal prosecutors in Los Angeles have met several times with lawyers for Mr. Mozilo and more than half a dozen other potential defendants from Countrywide to discuss the lawsuit, said the people briefed on the matter. The identities of the other defendants could not be determined.

Still, some defense lawyers left those meetings expecting a lawsuit to have been filed by now, the people briefed on the matter said.

Lawyers for the former Countrywide officials under scrutiny have told prosecutors that their clients have no intention of settling with the government, and a lawsuit is likely to drag on for years, these people said.

And Mr. Mozilo, who will turn 76 in December, has said he has health issues, although that is not believed to be a major consideration for prosecutors.

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Loretta E. Lynch, if confirmed to succeed Eric H. Holder Jr. as attorney general, may be faced with making the decision on a suit.Credit Win McNamee/Getty Images

Now it appears that a decision about suing the onetime mortgage titan will not be made until early next year. A decision to file a lawsuit would ultimately require the approval of the Justice Department in Washington. It could become one of the first orders of business for Loretta E. Lynch, the United States attorney for Brooklyn, if she is confirmed by the Senate as the next United States attorney general.

Daniel C. Richman, a professor of criminal law at Columbia University, said that Mr. Mozilo’s settlement with the S.E.C. should not deter federal prosecutors from pursuing their own civil case if the facts warrant it.

“Settling with the S.E.C. in and of itself doesn’t necessarily guarantee peace from the government at large,” Mr. Richman said. “If Mr. Mozilo had wanted to have other government agencies brought into a global settlement at that time, I think they would have agreed.”

The decision by prosecutors in Los Angeles to close their criminal investigation of Mr. Mozilo — who for many became the public face of Wall Street’s excesses in the mortgage market — helped fuel some of the populist anger over the absence of criminal prosecutions of bankers related to the financial crisis.

But prosecutors in Los Angeles took a fresh look at Mr. Mozilo, weighing whether to use a 25-year-old federal statute, the Financial Institutions Reform, Recovery and Enforcement Act, or Firrea, which permits authorities to file civil actions against individuals for criminal violations.

In a 2010 essay discussing Firrea, Mr. Weidman urged his colleagues to use the civil statute and its lower burden of proof for “cases that have been declined by your criminal division because of insufficient evidence to prove a violation beyond a reasonable doubt.”

Since then, federal prosecutors in Washington and across the country have used the law to extract more than $36 billion in settlement dollars from Wall Street banks that played a part in selling faulty mortgage-backed securities in the run-up to the financial crisis.

Mr. Weidman and his fellow prosecutors in the Los Angeles office had a hand in helping negotiate the Justice Department’s $16.65 billion settlement of a Firrea case against Bank of America, which acquired Countrywide in 2008 and assumed its liabilities.

The news of the possible Firrea lawsuit against Mr. Mozilo was first reported by Bloomberg on the eve of the government’s settlement with Bank of America, which was announced by the Justice Department on Aug. 21.

Until now, the Justice Department has used the potential of filing a lawsuit against Mr. Mozilo as the basis for denying Freedom of Information Act requests seeking information about the decision by Los Angeles prosecutors to drop their criminal investigation into Countrywide and Mr. Mozilo.

In September, Citizens for Responsibility and Ethics in Washington, a public interest organization, voluntarily dismissed a lawsuit it had filed seeking to compel the Justice Department to comply with its FOIA request for all records related to the decision not to file criminal charges. The group dismissed the suit after it received a letter from Mr. Weidman that stated the records sought were of “critical importance” to an “ongoing law enforcement investigation.”

The Justice Department offered a similar rationale on Oct. 2 for denying a FOIA request submitted by The New York Times.