The employees of the mortgage company filed a suit in a federal court in Santa Ana, California saying the 401(k) plan suffered steep losses after news of the company’s tumultuous financial status prompted a drop in stock prices.
According to a news release, the suit makes several claims of wrongdoing by Countrywide and retirement plan administrators, including:
- failure to prudently and loyally manage the plan’s assets,
- failure to provide complete and accurate information to participants and beneficiaries,
- failure to monitor the compensation and benefit plan committees and provide them with accurate information,
- breach of duty to avoid conflicts of interest, and
- co-fiduciary liability.
From October 27, 2005 until August 9, 2007, Countrywide matched 401(k) employee contributions with company stock.
The company announced charges of $417 million and a loan-loss provision of $292.2 million at the end of June, causing company shares to fall more than 10% to $30 per share, losing $1.87 billion in total market capitalization. On August 16, 2007, the company’s stock dropped an additional 30% to $15 per share, following news that Countrywide was using all of an $11.5 billion credit line due.
Between February 2007 and August 16, 2007, Countrywide’s shares lost nearly three-quarters of their value.
The suit claims that CEO Angelo Mozilo and benefits committee members had a fiduciary responsibility to warn employees about the company’s financial turmoil. In particular, the suit alleges that Mozilo repeatedly certified financial statements he knew were misleading in an attempt to cover the high-risk loans his company was selling. He ignored analyst recommendations to compile a reserve.