U.S. regulators have recommended filing a civil fraud suit against Countrywide Financial co-founder Angelo Mozilo for insider trading, the Wall Street Journal reported on Wednesday.

Staff at the Securities and Exchange Commission had decided to recommend filing the suit against Mozilo, co-founder of the No. 1 U.S. home-mortgage lender taken over by Bank of America Corp , the Journal cited people familiar with the investigation as saying.

Mozilo attorney David Siegel said he would not comment on any rumors regarding the SEC's previously-disclosed investigation of Mozilo's trading activities.

The persistent innuendo in the media and political circles that Mr. Mozilo was selling Countrywide stock because he was aware of some supposedly 'secret' adverse information about the Company is scandalous and inconsistent with even a cursory examination of the facts surrounding the history of his stock holdings, Siegel said in an e-mailed statement.

According to the Journal, the SEC sent a Wells notice to Mozilo weeks ago alerting him of the planned charges, which included alleged violations of insider-trading laws, as well as failing to disclose material information to shareholders.

U.S. securities regulators and criminal prosecutors have brought some big insider trading cases in recent years. The SEC, in particular, has made insider trading a priority, setting up a hedge fund unit within its enforcement division to combat unlawful trading.

Two of the biggest recent cases were the 2007 criminal conviction of former Qwest Communications CEO Joseph Nacchio for insider trading in company stock and the 2004 conviction of homemaking expert Martha Stewart on criminal charges of lying to investigators about a suspicious stock sale.

Bank of America, which bought Countrywide for $2.5 billion in July, last month dropped the Countrywide name from its mortgage operations, shedding a 40-year-old brand that became synonymous with risky lending practices that helped fuel a U.S. housing boom and bust.

A Wells notice is a precursor to a civil lawsuit in an SEC investigation. It outlines to an individual or company under investigation what allegations might be filed against them and gives a target a chance to respond to the allegations.

A civil suit against Mozilo, if his lawyers fail to deflect it and SEC commissioners approve a filing, may be announced in coming weeks, the Journal cited unidentified sources as saying.

Lawyers for the Commission were not immediately available for comment.

Founded in 1969, Countrywide -- blasted for offering loans to would-be homeowners who could scarcely afford them -- already faces a string of lawsuits over past business practices, as well as an FBI investigation.

The SEC had been investigating Mozilo's systematic sales of the lender's stock, which began shortly before the housing crisis began. He had received several hundred million dollars of compensation for running Countrywide this decade.

In 2007, Mozilo told a conference call he had engaged in no trading decisions based on any material nonpublic information and said he welcomed the SEC's informal inquiry into his activities.

Bank of America acquired Countrywide last July for $2.5 billion.

During the housing boom, Mozilo ranked as one of the top- paid U.S. executives, getting about $387 million from pay and stock option gains from 2002 to 2006, according to regulatory filings.

In January 2008, Mozilo said he would give up $37.5 million in severance pay and other fees he stood to gain from the mortgage lender's sale to Bank of America.

As the mortgage crisis spread in 2007 and Countrywide's share price collapsed, Mozilo publicly remained confident in the long-term success of his company, telling CNBC in December of 2007 that the mortgage lender was a strong, viable financial company.

(Reporting by Gina Keating, Rachelle Younglai and Nichola Groom; Editing by Edwin Chan and Andre Grenon)

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