LAWFUEL – The US Law Newswire – Three former vice presidents with Countrywide Financial Corporation have agreed to plead guilty to insider trading, with each admitting using confidential financial data about the company to make stock transactions that brought each man tens of thousands of dollars in profits.
In plea agreements filed today in United States District Court in Los Angeles, the three defendants acknowledge obtaining information that the parent company of Countrywide Home Loans would not meet analysts expectations for the third quarter of 2004, and then using that information to liquidate common stock they owned, to purchase put options in Countrywide stock, and to short-sell company stock.
The three defendants charged today are:
Alan Cao, 38, of Woodland Hills, who was Countrywide’s Vice president of financial planning and worked at Countrywide’s headquarters in Calabasas;
Quan Zhu, 43, of Santa Monica, who was Countrywide’s executive vice president of portfolio risk management and worked at the company’s headquarters in Calabasas; and
Jun Shi, 43, of Moorpark, who was the first vice president of planning at Countrywide Bank, a wholly-owned subsidiary of Countrywide Financial, and worked at Countrywide Bank’s offices in Thousand Oaks.
Countrywide Financial Corporation is a financial services company specializing in mortgage banking and loan closing services through its various subsidiaries including Countrywide Home Loans and LandSafe. Cao worked in the company’s financial forecast group, where he worked on financial models that projected Countrywide’s revenues and earnings for future quarters. In this position, Cao had access to material, non-public information regarding Countrywide’s financial performance.
In October of 2004, Cao learned the Countrywide’s earnings per share for the third quarter of 2004 would be 94 cents, which was 7 cents lower than projections made by Wall Street analysts. Cao then disclosed to Shi and Zhu in several telephone calls that Countrywide would fall short of the consensus estimate for third quarter earnings. Between October 14 and October 19, Cao, Zhu and Shi engaged in various securities transactions premised on the knowledge and belief that the price of Countrywide’s stock would decline following its earnings announcement.
In the early morning hours of October 20, Countrywide announced its earnings per share for the third quarter of 2004. Countrywide’s stock price closed 11.5 percent lower than the previous day.
As a result of the scheme, Cao realized profits of approximately $47,668. Zhu’s total illegal profits from the tips he received from Cao was $35,547. And, Shi realized illegal profits totaling $19,995.
The Securities and Exchange Commission in 2006 filed a civil lawsuit against Cao and Shi, which they settled by disgorging their ill-gotten gains and paying a civil penalty, see: http://www.sec.gov/litigation/litreleases/lr19586.htm.
Cao, Zhu and Shi will be summoned to make court appearances in the coming weeks. Each defendant has agreed to plead guilty to one count of securities fraud, a charge that carries a maximum statutory sentence of 20 years in federal prison.
The criminal case is the result of an investigation by the Federal Bureau of Investigation, which received the assistance of the Securities and Exchange Commission.
CONTACT: Assistant United States Attorney Beong-Soo Kim
Release No. 07-086