Former New Century Financial Execs Settle with SEC
The Securities and Exchange Commission has accepted settlement offers from three former officers of New Century Financial Corp., the subprime lender that was one of the first to collapse at the start of the subprime mortgage crisis.
Former CEO and co-founder Brad A. Morrice, former CFO Patti M. Dodge and former controller David N. Kenneally consented to the settlement. The settlement offers, which have been submitted to a court for approval, are contingent upon the courts approval of a global settlement in a lawsuit involving the collapsed lender.
Separately, New Centurys former auditor KPMG reportedly settled a lawsuit with the New Century Liquidating Trustee last month.
The SECs complaint alleges, among other things, that New Centurys second and third quarter 2006 Forms 10-Q and two late 2006 private stock offerings contained false and misleading statements regarding its subprime mortgage business.
The complaint further alleges that Morrice and Dodge knew about certain negative trends in New Centurys loan portfolio from reports they received and that they participated in the disclosure process, but they did not take adequate steps to ensure that the negative trends were properly disclosed.
The SECs complaint also alleges that in the second and third quarters of 2006, Kenneally, contrary to U.S. GAAP, implemented changes to New Centurys method for estimating its loan repurchase obligation and failed to ensure that New Centurys backlog of pending loan repurchase requests were properly accounted for, resulting in an understatement of New Centurys repurchase reserve and a material overstatement of New Centurys financial results. The complaint further alleges that Dodge was told of the methodology changes and the backlog of repurchase requests but did not ensure that they were properly accounted for and disclosed.
To settle the charges, Morrice consented to the entry of a permanent injunction prohibiting him from violating the securities laws. He also agreed to disgorge $464,354 with $76,991 in prejudgment interest, and to pay a $250,000 civil penalty.
Dodge consented to the entry of a permanent injunction prohibiting her from violating the securities laws, and to disgorge $379,808 with $70,192 in prejudgment interest thereon, and to pay a $100,000 civil penalty. Kenneally consented to the entry of a permanent injunction prohibiting him from violating the securities laws and to disgorge $126,676 with $23,324 in prejudgment interest, and to pay a $32,500 civil penalty.
Each of the defendants also agreed to be barred for five years from serving as an officer and director of a public company.
Disgorgement, prejudgment interest and penalties will be distributed to harmed investors pursuant to the final judgments, according to the SEC.