Reuters News Service and the Associated Press are both quoting a story in the Wall Street Journal on Wednesday that the controversial CEO of Countrywide Mortgage, Angelo Mozilo, is under an informal investigation by the Securities and Exchange Commission (SEC).

Countrywide is the largest mortgage company in the country and Mozilo, its founder, is generally credited or blamed for the company's evolution from a mostly conventional lender into one where subprime products dominated.

Along with dozens of other companies Countrywide faced a liquidity crisis several months ago. Because of rising default rates among its loans 61 percent of its capitalization ($15 billion) evaporated during the first eight months of 2007 and its survival was in some doubt until Bank of America stepped forward to invest $2 billion in the company, Countrywide is still casting around for additional investors and a Reuters article on September 12 said that there were large numbers of $10 Countrywide October Puts outstanding. A Put is an option that allows an investor to purchase a stock at that price - essentially a bet that a stock price is going to fall before expiration of the Put. At that time Countrywide was trading at $16 and change. The stock, however, closed yesterday at $17.35. One year ago the stock was selling in the $40 range.

Countrywide has announced plans to eliminate 10,000 to 12,000 jobs - approximately 20 percent of its workforce - and will take a $125 to $150 million pretax restructuring charge resulting from the downsizing.

The SEC is apparently investigating a dozen or so companies, including Countrywide, in connection with the subprime mess but, according to The Wall Street Journal article it is taking a special if informal look at Mozilo.

At issue is the sale by Mozilo of some 130 million of his company's stock in the first six months of 2007. It seems that there is a rather large loophole... ahem, provision, in the rules against insider trading that allows an insider to set up what is called a 10b51 trading plan. Such a plan, once established, allows the insider to proceed with transactions such as buying, selling, or exercising options even if he or she subsequently comes into possession of information that might impact stock prices which is not available to the public.

North Carolina's state treasurer Richard Moore last week asked the SEC to investigate Mozilo's stock sales, claiming that there were changes made to the pre-set trading plans in the months before the company's stock fell. An SEC insider speaking under a guarantee of anonymity, however, said that the informal inquiry into Mozilo's stock activities had been going on for a while.

The SEC had no immediate comment on the report nor did Countrywide, but the agency has previously said it is "looking hard at the general issue of whether executives are illegally trading on insider information and using a preset trading plan to avoid suspicion."

Forbes lists the 68-year-old Mozilo as the nation's seventh most highly compensated chairman with a total compensation package of $141.98 million (approximately $48 million in salary.) Over the last five years his total compensation was $295.73 million. He is listed as the top-ranked executive within Forbes category of Diversified Financials.