The smartest dealmaker on Wall Street is 73-year old Countrywide Financial's Angelo Mozilo. He is also one of the best market timers on Wall Street. Before the subprime mortgage crisis hit, Mozilo sold a substantial portion of his Countrywide stock holdings while he told everybody there is nothing wrong with Countrywide to merit those sales. Here is a summary of Mozilo's insider sales:
1. During the last two months of 2006 Mozilo sold nearly 900K shares of Countrywide for more than $35 Million.
2. During the first quarter of 2007 Mozilo sold 1.6 Million shares of Countrywide for nearly $65 Million.
3. Between April 2007 and early July 2007 Mozilo sold another 1.7 Million shares for $66 Million.
4. Between July 2007 and October 2007 Mozilo sold another 1.3 Million shares for $34 Million as Countrywide's stock price started to collapse.
Overall Mozilo gained more than $200 Million from these insider sales. He didn't stop there though. Even though he owned only 2 Million shares, or 0.35% of the outstanding shares, he sold Countrywide to Ken Lewis' Bank of America for $4 Billion. At the time he made the following prophetic statement:
"We believe this is the right decision for our shareholders, customers, and employees."
He was right. It was the right decision for Countrywide's shareholders but it wasn't the right decision for Ken Lewis and Bank of America shareholders. The worst dealmaker on Wall Street, Ken Lewis, suggested that he was aware of Countrywide's troubles and said the following:
"Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation's premier lender to consumers"
Indeed, it was a rare opportunity to lose nearly $30 Billion to clean up all the mess Mozilo dumped on Bank of America shareholders.
Mozilo received only $14 Million for his remaining 2 Million shares which is infinitely better than zero and going to jail. He executed his brilliant plan without a glitch. Well, maybe there was a small glitch. In 2009, the SEC charged him with insider trading and securities fraud. Unfortunately back then, Preet Bharara wasn't in charge. The SEC wasn't smart enough to record Mozilo's conversations. So as usual the SEC settled another insider trading case for peanuts. Mozilo paid $67.5 Million without admitting or denying guilt. So, technically he wasn't even guilty of all the things he did.
Now we know that Countrywide was on the verge of an Enron-like crisis, facing nearly $30 Billion in future liabilities for their actions. Mozilo not only sold most of his holdings at sky-high prices but also avoided going to jail. He is definitely the best dealmaker on Wall Street.
There is one question left that we haven't answered. How could he sell millions of shares without any inquiries from the SEC for more than a year? Simple. SEC's Rule 10b5-1 allows insiders to buy or sell whenever they want as long as they do it under a 10b5-1 plan. You can read the details about 10b5-1 plans and how you can imitate insiders who use them and beat the market by 9 percentage points per year here.