Former Countrywide Financial Corp. chief executive officer Angelo Mozilo must face a lawsuit by the Securities and Exchange Commission alleging he misled investors about the home lender's deteriorating finances.

U.S. District Judge John F. Walter denied Mozilo's request to dismiss the SEC's securities fraud claims.

Walter also rejected similar requests by former Countrywide Chief Operating Officer David Sambol and former Chief Financial Officer Eric Sieracki.

"Given that Countrywide's core business, i.e., selling mortgages into the secondary market, admittedly depended upon the quality of its loan production, it is certainly not difficult for the court to conclude that the poor quality of Countrywide's underwriting practices and loan portfolio would be material to investors," Walter said.

The SEC sued Mozilo in June, saying he publicly reassured investors about the quality of Countrywide's loans while he issued "dire" internal warnings and sold about $140 million of his own Countrywide shares.

He wrote in an e-mail that Countrywide was "flying blind" and had "no way" to determine the risks of some adjustable-rate mortgages, according to the SEC complaint.

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