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Whistleblower Michael G. Winston Defeats Countrywide and Bank of America, Wins His Federal lawsuit, But The US Justice Department Will Not Prosecute Countrywide's Chief

Mr. Winston spent three years in a legal battle against Countrywide, the once-mighty mortgage giant, and its current owner, Bank of America, contending that he was punished and pushed out for not toeing the company line. On Feb. 4, he won: a jury in California awarded him $3.8 million in damages. “It is the littlest of Davids beating the biggest of Goliaths and taking two of them on at once,” Mr. Winston said. “This is the story of somebody who tried to set a company right. But it was frightening to them for me to shine the light from the inside out.” But the US Department of Justice will not pursue criminal charges against Angelo Mozilo, former Chairman of Countrywide Financial Corporation.


February 19, 2011
How a Whistle-Blower Conquered Countrywide
By GRETCHEN MORGENSON, NY TIMES
LINK

WHAT does it take to hold your powerful bosses accountable if they try to bully you out the door?

Documents, e-mails, a former deputy district attorney as your lawyer — and a never-say-die approach.

Such was the lesson learned by Michael G. Winston, a former executive at the Countrywide Financial Corporation. Mr. Winston spent three years in a legal battle against Countrywide, the once-mighty mortgage giant, and its current owner, Bank of America, contending that he was punished and pushed out for not toeing the company line. On Feb. 4, he won: a jury in California awarded him $3.8 million in damages.

“It is the littlest of Davids beating the biggest of Goliaths and taking two of them on at once,” Mr. Winston said. “This is the story of somebody who tried to set a company right. But it was frightening to them for me to shine the light from the inside out.”

Mr. Winston’s story provides a glimpse into how business was done at Countrywide at the height of the subprime craziness — and how assiduously Angelo R. Mozilo, the company’s fallen leader, worked to quash dissent in the ranks. Mr. Winston had the audacity to question Countrywide practices. Mr. Mozilo was not pleased and, before long, Mr. Winston was marginalized and later dismissed.

Mr. Winston, a prominent executive in the field of organization management, is a rarity among corporate whistle-blowers. Most of them get run over by their former companies. A fascinating detail in his case: after providing to the opposition his list of witnesses, which included former colleagues who had also been let go by Bank of America, the bank hired several of them back. Then they testified against him.

Mr. Winston’s lawyer was Charles T. Mathews, a former prosecutor in the Los Angeles district attorney’s office. “This case is about holding these scoundrels accountable and it is absolutely vital that these people be brought in front of a jury,” Mr. Mathews said. “They hired these huge law firms with unlimited budgets, but when plain, ordinary citizens see the evidence and hear the facts they are repulsed by what these people did.”

The jury heard from an array of former Countrywide executives, including Mr. Mozilo, in a rare courtroom appearance. David Sambol, Countrywide’s former president, also testified.

Sam Usher, 73, was a juror on the case. A former human resources executive at General Motors, he is a program manager for addiction treatment centers at several hospitals in Los Angeles. Asked about the trial, Mr. Usher said the witnesses for Countrywide and Bank of America were unpersuasive.

“There was an air of arrogance about them,” he said. “The attorneys for the plaintiff caught most of them in little lies that cracked their credibility. Meanwhile, Mr. Winston’s witnesses had credibility and the documentation kind of supported his testimony.”

Mr. Winston did not win on all his claims. For example, the jury rejected his contention that Countrywide had reneged on an oral agreement to provide him with substantial stock awards in future years after he agreed to a relatively modest starting salary.

But the jury voted 9 to 3 that Bank of America’s dismissal was motivated by two of Mr. Winston’s actions — both essentially refusals to play the game that Countrywide wanted him to.

“The acquisition by Bank of America provided an opportunity to drop him off the cliff,” Mr. Usher said.

A spokeswoman for Bank of America said the bank would ask the trial court to reverse the jury verdict and enter judgment in the company’s favor. “We believe that the jury’s verdict finding liability on the wrongful-termination claim is not supported by any evidence, let alone ‘substantial evidence’ as is required by law,” she said.

MR. WINSTON joined Countrywide in May 2005, when the lender was riding the mortgage wave. He was hired as an executive vice president in the leadership development area to help Countrywide grow even bigger and groom better managers. His boss, he recalled, told him that the lender wanted to become “Goldman Sachs on the Pacific.” Soon after, he was promoted to managing director and enterprise chief leadership officer.

Mr. Winston’s career experience included successful stints at Motorola, McDonnell Douglas and Lockheed. He also worked previously as the global head of worldwide leadership and organizational strategy at Merrill Lynch in New York but resigned from that position in 2003 to take care of his parents, who were terminally ill.

It wasn’t long after he joined Countrywide that Mr. Winston began to worry about its business strategy, he said. He still recalls an episode from late 2005 that raised red flags for him. He found himself parked next to a man in the Countrywide lot whose car had vanity plates that read, “Fund’Em.” “I said: ‘I’m not familiar with that expression. What is this about?’ ” Mr. Winston recalled. The man replied that the term described the company’s growth strategy for 2006 — to fund all loans. “I was brand new and I said, ‘What if the person has no job?’ ” Mr. Winston said. The answer: “Fund ’em.”

“What if the person has no assets?”

Again: “Fund ’em.”

Mr. Winston said he immediately relayed his fears about what he saw as an anything-goes strategy to Drew Gissinger, chief production officer of Countrywide Home Loans. “I told him that you need to focus on customer satisfaction, on the quality of the loan portfolio and on building leaders who would focus their people on that,” Mr. Winston said. “I wrote him a very comprehensive proposal on how to reward people properly.”

Then, in late July 2006, nine days after he was promoted to managing director, something strange happened at the office building where Mr. Winston and his colleagues worked. In his description of the event to the jury, he was sitting in his office when orange-pink vapors and droplets of who-knows-what dripped on him. He became nauseated and left the building with his employees.

“I returned the next day, after I had some testing and went around to find out how my guys were,” he said. “People were not only sick but frightened about working in the building.”

He reported the situation to his superiors; many workers began to report symptoms of illness. In early August, Mr. Winston asked a buildings official what had been done about the problem. He said he was told it was a one-off event. Case closed.

“I went to my office closed the door and called Cal OSHA,” Mr. Winston said, referring to the occupational safety agency in the state. (Cal OSHA produced a report, and Countrywide said it addressed the problem, but Mr. Winston said he never learned the details.)

Soon, Mr. Winston said, his budget was frozen. He began to be uninvited to meetings. He was forced to relocate his office four times in seven months.

In September 2006, he told his boss, Leora Goren, the head of human resources, that he was fearful of losing his job and that he had consulted a lawyer.

Mr. Winston’s final mistake for Countrywide came two months later. As he tells it, he refused to misrepresent Countrywide’s corporate governance practices in a report to analysts at Moody’s Investors Service, the ratings agency.

On Nov. 20, Mr. Winston received a copy of an unpublished report on Countrywide by Moody’s. It expressed concerns about executive pay and succession planning at the lender. “We view governance as a credit challenge that constrains future ratings improvement at Countrywide,” the report said.

Mr. Winston said that Countrywide scrambled to try to refute Moody’s take and that Mr. Sambol, Countrywide’s president, asked him to write a report countering the analysis and providing chapter and verse on the extensive succession planning at the company.

Trouble was, Mr. Winston had never seen that extensive succession plan. In fact, as with so many subprime loans, he never saw any documentation at all, even after he asked for it, he said. He testified that he told Mr. Sambol he could not do the report. “I’m not your guy,” he told him.

BY now, Mr. Winston had a target on his back. On Jan. 24, 2007, Mr. Mozilo wrote an e-mail to Ms. Goren, the head of human resources whom Mr. Winston had told about hiring a lawyer for himself.

“As I expressed to you, I am concerned about the motivations and overall attitude and demeanor of Michael Winston,” Mr. Mozilo wrote. “I want him terminated effective immediately.”

Testifying before the jury, Mr. Mozilo said he wanted Mr. Winston gone “because I concluded that he was not the type of individual that I wanted at a senior level at the company.”

But Ms. Goren advised Mr. Mozilo against the firing. “I strongly believe that terminating Michael would not be in the best interest of the company,” she replied in an e-mail to him, “as doing so would cause us the loss of an extremely talented, albeit eccentric individual.”

Mr. Winston remained at Countrywide with two people reporting to him, down from 178 previously. When Bank of America took over in 2008, he was let go.

Today, Mr. Winston, 60, is hoping to go back to work.

“I want to do my part to promote vision-driven, values-based leadership that is a force for good,” he said.

Whistleblower Michael G. Winston Defeats Countrywide and Bank of America
The Corporate Observer, February 21, 2011
by Steven Berk
Whistleblower Michael G. Winston Defeats Countrywide and Bank of America

The story has a happy ending. In a jury trial against Countrywide and Bank of America, Michael Winston prevails and the jury awards him $3.8 million. For Mr. Winston, surely a man of principle, it likely not just about the money.

We applaud Michael G. Winston for his courage and tenacity; and our old friend Gretchen Morgenson for continuing to shine a light on practices in American business that - while not pretty - must be exposed. Mr. Winston was hired during Countrywide’s heyday as the king of the no-document, sub-prime mortgage. They did not create the industry, but through their uber aggressive CEO Angelo R. Mozilo, they took full advantage of a milieu that not only allowed for but incentivized funding mortgages at any cost: worry about the consequences later.

The hiring of Mr. Winston was a rather strange choice for this culture of high rollers. He was a grown up. A veteran of Motorola, Lockheed and McDonnell Douglas as reported by Ms. Morgenson he was tasked with “grooming better managers”. As he became exposed to this culture from the inside, he began asking questions and more questions, and after thoughtful analysis recommended Countrywide “focus on customer satisfaction, on the quality of the loan portfolio and on building leaders who would focus their people on that.”

Well it turns out that Mozilo and his crew wanted a yes man, a cover from critics; not Jimmy Stewart as Mr. Smith goes to Washington. Mr. Winston rolled up his sleeves and issued a report concluding Countrywide needed to shift its culture away from short term greed and move to a model of measured sustainability.

But Mozilo and his crew ignored him, froze him out of meetings, and may in a bizarre scene straight out of the movies have even been behind an effort to poison Mr. Winston’s team. These Countrywide guys played hard ball.

And then the moment of truth. Mr. Winston was asked (perhaps told) to rebut a rating agency analysis of Countrywide’s corporate governance practices. Here he is 50+ years old. While he has exemplary credentials, he may not have many more opportunities, particularly if he crosses Bank of America.

Good news, honesty and courage defeat intimidation and fear. Mr. Winston says no! For that he is almost immediately fired.

But the story has a happy ending. In a jury trial against Countrywide and Bank of America, Michael Winston prevails and the jury awards him $3.8 million. For Mr. Winston, surely a man of principle, it likely not just about the money. He has followed his moral compass and prevailed.

We thank him for his service, courage and the example he creates for others. (And of course Gretchen Morgenson for highlighting the story.

Steven N. Berk
1225 15th Street NW
Washington, D.C. 20005

Public Will Be Deprived of Seeing Angelo Mozilo Tried in the ‘Flesh’ (Updated)

* 10/15/10 at 11:31 AM
* 4Comments

Public Will Be Deprived of Seeing Angelo Mozilo Tried in the ‘Flesh’ (Updated)
NY Magazine Daily Intel, 10/15/10
LINK

Over the past year, "enormous efforts" have gone into preparations for the trial of Countrywide CEO Angelo Mozilo on insider trading and fraud charges scheduled for Tuesday, including "extensive depositions of the defendants and others," as well as, we're sure, an intensive personal tanning and grooming regimen for the man himself. Now, at the eleventh hour, the Wall Street Journal informs us that there may not be a trial, and that Mozilo is in settlement talks with the SEC, most likely because his lawyers fear whatever he says on the stand could lead to criminal charges. The question is: Will the SEC allow themselves to be placated with a boatload of Angelo's dirty cash? Or will they follow through and actually make an example of the first top financial-services executive to be charged in connection with the financial crisis? Oh, kidding, that's not the question. The question is: How much will the settlement be?

Update: And we have an answer: $67.5 million. A $22.5 million civil penalty, plus $45 million in disgorgement.

Mozilo and SEC in Deal Discussions
Former Countrywide Chief, Two Others Also Face Criminal Probe in Fraud Case; Trial Set for Tuesday
By JOHN R. EMSHWILLER
LINK

LOS ANGELES—Confidential talks begun in recent weeks appear to be moving toward a settlement in the Securities and Exchange Commission's high-profile civil fraud case against former Countrywide Financial Corp. Chief Executive Angelo Mozilo and two other former executives, people familiar with the matter said.

Late Thursday, a status conference on the case was ordered for Friday, a move that could signal a new development in the suit. If no agreement is reached, a jury trial is scheduled to begin Tuesday in federal court here before Judge John Walter.

It is also possible, people familiar with the matter said, that only one or two of the defendants would reach a settlement before the trial. Attorneys for both sides are preparing for trial in the event it goes forward, said people familiar with the matter.

An SEC spokesman declined to comment. Attorneys for Mr. Mozilo and the two other defendants, former Countrywide President David Sambol and former finance chief Eric Sieracki, didn't respond to requests for comment. The defendants have denied any wrongdoing.

The SEC alleges the defendants hid from the public the problems in Countrywide's portfolio of risky loans. Those problems eventually forced the mortgage giant's 2008 sale to Bank of America Corp. Bank of America isn't involved in the SEC suit.

The SEC is seeking injunctions and penalties against the defendants. It also has charged Mr. Mozilo with insider trading regarding his sale of nearly $140 million of Countrywide stock. If Mr. Mozilo loses the case, he could face tens of millions in penalties.

SEC cases routinely settle without going to trial. However, in this instance, enormous efforts have gone into preparing for trial over the past year, including extensive depositions of the defendants and others. Still, observers say both sides in the Countrywide case, one of the biggest government enforcement actions to arise out of the 2008 financial crisis, have reasons to want to avoid a trial.

For the defendants—particularly Mr. Mozilo, who was one of the mortgage industry's best-known figures over the past decade—a settlement of the SEC case could mitigate the dangers of possible criminal charges. The U.S. attorney's office here has been conducting a criminal probe of Countrywide and brought witnesses before a grand jury. A spokesman for U.S. Attorney Andre Birotte Jr. declined to comment on that probe.

Given his prominence and role as the man who built Countrywide into the nation's biggest mortgage lender, Mr. Mozilo has been long been viewed by observers as the main target of the SEC and Justice Department investigations. Given the continuing criminal probe, Mr. Mozilo in particular has to weigh whether proceeding to trial would possibly be "providing additional fodder for prosecutors," says Robert Mintz, a former federal prosecutor who is now in private practice in Newark, N.J. And if the SEC wins the case, news of the defendants being found guilty of civil fraud could affect the jury pool for any possible criminal case, adds Mr. Mintz.

David Sambol

Even if Mr. Mozilo never faces criminal charges, a settlement with the SEC, in which defendants routinely neither admit nor deny wrongdoing, could make it easier for him to defend himself against the numerous civil suits spawned by Countrywide's problems, says Jacob Frenkel, a former SEC enforcement attorney now in private practice in Potomac, Md. Such a settlement wouldn't "have any precedential value" for plaintiffs' attorneys in the suits, he says. An adverse jury verdict in a trial of the SEC case could be very valuable to plaintiffs' attorneys, Mr. Frenkel said.

Observers say a settlement also has attractions for the SEC, whose reputation has been battered over the past few years by its failure to do more to stem the 2008 financial crisis or to more quickly unearth some major fraud cases—-particularly the multibillion-dollar Ponzi scheme of Bernard Madoff. Losing the Countrywide case "would not be a positive step" in rebuilding the SEC's image, says Mr. Frenkel.

On the other hand, the SEC could chalk up obtaining a settlement with substantial monetary payments as a victory.

A Mozilo settlement with the SEC could benefit the other two defendants if they proceed to trial. Since neither Mr. Sambol nor Mr. Sieracki are nearly as well known as Mr. Mozilo, the absence of their former boss in the case could lessen the chances any jurors would arrive with preformed opinions of the defendants.

Write to John R. Emshwiller at john.emshwiller@wsj.com

Exoneration of Countrywide's Angelo Mozilo Signals Ongoing Integrity Crisis of the US Justice System
In Pro Per In LA
LINK

Unless conduct of the US justice system is addressed, it is unlikely that socio-economic development and civil society conditions in the United States will improve anytime soon.

Los Angeles, February 20 - News media have reported this week that US prosecutors dropped the criminal investigation of Angelo Mozilo, former Chairman of Countrywide Financial Corporation.

In response, Dr Zernik of Human Rights Alert (NGO) issued a statement calling the decision "A clear signal of ongoing integrity crisis of the US justice system, and ongoing dysfunctional banking regulation in the United States."

Dr Zernik added: "Like the Great Depression a century ago, the current financial/economic crisis in its core is an integrity crisis of the US justice system. Unless conduct of the US justice system is addressed, it is unlikely that socio-economic development and civil society conditions in the United States will improve anytime soon."

Starting January 2007 Dr Zernik filed complaints with FBI, Office of Thrift Regulation, and Federal Trade Commission and SEC. The complaints documented fraud in Countrywide operations as early as 2004:

* Fraud in Countrywide's underwriting monitoring system (EDGE), which enabled underwriting sub-prime loans with no underwriting at all.
* Fraud in fax transmission operations in Countrywide, which bypassed Countrywide's fax server system, and enabled the falsification of loan application (1003s) files.
* Dismantling of internal and external audit systems.
* Direct involvement of ANGELO MOZILO (then Chairman) and SANDOR SAMUELS (then Chief Legal Officer, today - Associate General Counsel of Bank of America) in such conduct.

The complaints alleged violations of banking regulations, wire fraud, large-scale financial institution fraud, and racketeering. The complaints also projected liability to the US Treasury of hundreds of billions of US dollars through Countrywide's conduct.

US law enforcement and banking regulators refused to investigate the complaints.

Freedom of Information Act responses by SEC, Thrift Regulation, and Trade Commission later documented that the complaints were eliminated from US agencies records, although sufficient evidence was found in the responses that such complaints had existed.

* In January 2008 Countrywide collapsed, and the losses to the US Treasury were materialized.

* In early 2008 complaints were filed with FBI Director and US Attorney General, which documented tight links were documented between Countrywide, and later, Bank of America and its President Brian Moynihan and corruption in the Los Angeles Superior Court, led by California Judge JACQUELINE CONNOR (best known for derailing the First Rampart Trial in 2000).

* In 2008, Fraud Expert, and FBI veteran JAMES WEDICK, who was decorated by US Congress, US Attorney General, and FBI Director, opined real estate fraud, perpetrated by Attorney DAVID PASTERNAK (former President of the Los Angeles County Bar Association), on behalf of Countrywide/Bank of America and the Los Angeles Superior Court.

* In 2008, the Fraud Expert also documented his discussion with FBI on the matter. The Fraud Expert indicated that while FBI agreed with Dr Zernik's claims. However, FBI was not going to provide equal protection, since it would require exposing of widespread corruption of the Los Angeles Superior Court.

* In 2008, Congressional Inquiries were filed by Senator DIANNE FEINSTEIN and Congresswoman DIANE WATSON on FBI and US Attorney General, why US law enforcement would not investigate the complaints and the request for equal protection of the 10 million residents of Los Angeles County against alleged racketeering by judges of the Los Angeles Superior Court.

* In 2009, complaint was filed with the office of Inspector General of the US Department of Justice GLENN FINE, claiming fraud by senior US Department of Justice Officers on the US Congress. The complaint pertained to responses of FBI Assistant Director KENNETH KAISER and then Director of US Attorneys Office KENNETH MELSON to the US Congress Inquiries in 2008.

* The office of US Department of Justice Inspector General refuses to investigate the complain to this date.
* In 2010 complaints were filed with Office of the US Controller of the Currency and SEC, documenting fraud by senior management in Bank of America corporation, including direct involvement of BRIAN MOYNIHAN.
The US Controller of the Currency and SEC refuse to investigate the complaints to this date.

During the same period, senior US Department of Justice and banking regulation officers repeatedly provided testimonies before the US Congress, stating that there was no way to predict the sub-prime crisis, that no criminality was found in investigations of sub-prime lenders, and that US banking regulation was "shored up".

Such statements are claimed as fraud on the US Congress and on the people of the United States.

The civil litigation of SEC v Bank of America Corporation in the US District Court in New York, which was hailed by media as the hallmark of US banking regulation, was opined as fraud on the court by US Judge JED RAKOFF and Clerk RUBY KRAJICK. (See impeachment request of Judge Rakoff and clerk Krajick here, here, here, here, and here).

Conduct of the US government is also alleged as serious violation of the Human Rights and of the US government's duties and obligations as a good faith party to the international Basel Accords on banking regulation.

In 2010 Human Rights Alert's submitted a report to the United Nations Human Rights Council (HRC), as part of the first ever, 2010 Universal Periodic Review (UPR) of Human Rights in the United States. The report documented a pattern of housing fraud by large financial institutions in collusion with judges of the Los Angeles Superior Court and large law firms, and the refusal of US Department of Justice to provide equal protection.

The submission was later incorporated into the official Staff Report of the HRC, with reference to "Corruption of the courts and the legal profession and discrimination by law enforcement in California".

News reports during the current financial crisis documented similar conduct throughout the United States.