A controversial stock trading plan has given Countrywide Financial Corp. Chief Executive Angelo Mozilo a new distinction.

He now has a securities law named after him, at least by some.

Dubbed the “Mozilo clause” by some critics, Securities and Exchange Commission rule 10b5-1 enables company insiders to sell company stock provided they pledge that they don’t have “material” inside information at the time they set up a 10b5-1 plan. Then they can sell stock in the future, so long as the sales are in line with some schedule – perhaps price or time triggers – as set out in the plan. If the executives come across material non-public information as they sell stock, the plan can act as a defense against insider-trading charges.

Hundreds of top executives have such plans, but Mozilo is a particularly heavy user. He has sold more than $100 million worth of shares since August and $50 million in the last three months, according to regulatory filings. In the last week and a half alone, Mozilo sold nearly 200,000 shares for about $9 million. All those sales were under one of his several plans.

Many of those sales occurred in advance of sour news for Mozilo’s Calabasas-based company, which is a major lender in the subprime sector that melted down in February and March.

Countrywide’s stock hit a recent peak in early February, when it traded for just under $45 a share, but has sagged since, hitting a recent low of less than $33 early this month. On Thursday, Countrywide reported a 37 percent drop in first quarter earnings and trimmed its earnings outlook going forward.

“This Mozilo clause is clearly a loophole in the entire trading system,” said Alexandra Higgins, a senior compensation analyst for the Corporate Library, a governance research firm. “It’s obviously a way for executives like him to enrich themselves, and it’s highly convenient that most of these transactions tend to coincide with a negative earnings release and that option exercise dates happen to come just in time or before announcements.”

A Countrywide spokesman declined to make specific comments on the issue.

Bad timing

SEC filings reveal that all of Mozilo’s transactions since February were part of a 10b5-1 plan set up in December of 2006 and amended on February 2, when the subprime lending meltdown was picking up steam. (Earlier sales were made under previous 10b5-1 plans.)

Countrywide would not comment on the nature of the February amendment but it’s clear that the bulk of the proceeds from Mozilo’s estimated 64 transactions over the last 12 months came within the period of February 1 through last week.

Most of Mozilo’s more recent transactions involved options that were exercised and sold for a profit in the same day. For instance, on April 23, Mozilo exercised options on 70,000 shares, essentially buying them for $9.60 each and then selling them the same day for $37.33. This came three days after he exercised a separate block of 46,000 options at $10.89 and sold them for $37.84.

“A lot of executives are now setting up these plans because they see that this gives insiders a lot more flexibility and better returns,” said Dan Grant, a 10b5-1 specialist and vice president of brokerage firm William Blair & Co. “In theory, you can sign up today and trade tomorrow but the best practice is to create as much daylight as you can between setting up your plan and trading your shares.”