A New York state judge has dismissed a lawsuit filed by hedge fund investors in 2007 against Countrywide Financial Corp. over soured MBS issued during the boom years.

New York State Supreme Court Justice Barbara R. Kapnick said in a decision last week that the investors had failed to comply with a procedural rule that required them to get the backing of 25% of investors in their funds in order to file a lawsuit.

Countrywide is now owned by Bank of America Corp.

William Frey, the chief executive of Greenwich Financial Services, a hedge fund in Connecticut, said Friday that he is considering whether to appeal the decision or refile the lawsuit.

In other Countrywide news, ASR sister publication National Mortgage News reported that its former co-founder and CEO Angelo Mozilo and two of his top lieutenants at the once highflying lender/servicer have agreed to settle a massive civil fraud complaint filed against them by the Securities and Exchange Commission (SEC).

Mozilo will pay a $22.5 million civil penalty, plus $45 million in disgorgement, according to U.S. District Court Judge John Walter.

He had been accused of insider trading in connection with his sale of roughly $140 million worth of Countrywide stock over three years, charges he vehemently denied.

Countrywide, which Mozilo formed in the late 1960s with his friend and mentor David Loeb, was sold to Bank of America in August 2008 after its share price had plummeted in value. At one point, the mortgage firm's lenders called loans on the company, almost causing it to file for bankruptcy protection.

Countrywide's lending practices and near collapse was also the subject of an FBI probe but now with the SEC case settled, criminal charges are not expected to be filed.

Countrywide's share price began to deflate in 2007 after Mozilo warned that the nation's housing market was headed for a steep correction. Although Countrywide was one of the largest lenders to minorities, consumer attorneys accused the company of predatory and abusive lending practices. In certain states its foreclosure practices also were called into question.

Mozilo, along with former Countrywide president David Sambol and former CFO Eric Sieracki, appeared in a Los Angeles federal court on Friday morning where the settlement between the SEC and all three executives was announced.

All three defendants settled without admitting or denying any wrongdoing.

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