Lawyers Await New Century Examiner’s Report
A bankruptcy examiner’s report about problems at subprime lender New Century Financial could be unsealed as early as this week.
The report is likely to address advice by auditor KPMG, which was involved in accounting changes that forced New Century to restate earnings in February, the Recorder reports. The audit committee was never told of the accounting changes, lawyers familiar with the situation told the legal publication. New Century, once the second-largest subprime lender, filed for bankruptcy in April of last year.
The bankruptcy examiner, K&L Gates partner Michael Missal, has billed more than $12.4 million for work done by him and his colleagues. The Securities and Exchange Commission will likely be interested in finding out why the audit committee wasn’t kept informed and whether the lender’s former CFO had pushed for the accounting changes or deferred to KPMG’s recommendations.
The Wall Street Journal has previously reported that the SEC and Justice Department are probing possible insider trading and accounting problems at New Century.
The lender had hired Heller Ehrman to conduct an internal probe before it filed for bankruptcy, despite the law firm’s disclosure that it represented KPMG in other matters. Heller’s investigation was hampered by KPMG’s refusal to cooperate, a problem that Missal didn’t face due to his subpoena power.
“The soon-to-be-public document will fuel government investigators, creditors and state attorneys general—and maybe some lucky defense lawyers, if the findings break their way,” the story says. “But it could also prove instructive about the limits of internal investigations that companies now routinely order when faced with financial irregularities, and on which the government routinely relies.”
