Not to be confused with the settlement that KPMG reached with the Trustee of New Century that we reported on back in June. This particular lawsuit was brought by New York State Teachers’ Retirement System and shareholders in New Century.
A federal judge on Monday granted preliminary approval to a $125 million cash settlement for shareholders of bankrupt New Century Financial Corp., one of the largest lenders to collapse during the subprime mortgage meltdown.
The settlement involves three stipulations: Auditor KPMG LLP will pay $44.75 million; the underwriter defendants will pay $15 million; and New Century’s former officers and directors collectively will pay more than $65 million.
Along with the undisclosed sum from the Trustee of New Century, KPMG also paid $24 million to settle with the shareholders of Countrywide. Since we have no idea what the firm paid to settle with the Trustee we can’t give a ballpark number for settlements for the last 3-ish months but on the low end it’s at least $69 million.
If we put the over/under at $100 million, what are you taking? Throw in your ballpark figure just for fun.
There were just a few reports late on Friday about New Century Execs settling with the SEC over the failure to make certain risk disclosures. However, it’s worth mentioning that this is still more coverage than the settlement that KPMG reached with New Century that we reported on in late June – still no press release – but that’s neither here nor there.
On July 29, 2010, the Commission accepted settlement offers from three former officers of New Century Financial Corporation. Brad A. Morrice, the former CEO and co-founder; Patti M. Dodge, the former CFO; and David N. Kenneally, the former controller, consented to the relief described below without admitting or denying the allegations in the Commission’s Complaint. The settlement offers, which have been submitted to the Court for approval, are contingent upon the Court’s approval of a global settlement in In re New Century, Case No. 07-931-DDP (C.D. Cal.).
The Commission’s complaint alleges, among other things, that New Century’s 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 Century’s 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 Commission’s complaint also alleges that in the second and third quarters of 2006, Kenneally, contrary to Generally Accepted Accounting Principles, implemented changes to New Century’s method for estimating its loan repurchase obligation and failed to ensure that New Century’s backlog of pending loan repurchase requests were properly accounted for, resulting in an understatement of New Century’s repurchase reserve and a material overstatement of New Century’s financial results.
That “material overstatement” consisted of a $90 million profit in Q3 of ’06 that was actually a $18 loss.
Morrice, Dodge and Kenneally all agreed to cough up some of their ill gotten gains and were subjected to fines but they didn’t come close to Michael Dell sized proportions.
Francine McKenna reported briefly last week that KPMG settled the $1 billion lawsuit with the New Century Liquidating Trustee. Sure enough, we checked with Steven Thomas and he gave us the same statement:
“The New Century Liquidating Trustee and KPMG LLP have entered into a confidential settlement agreement, pursuant to which the lawsuits and arbitration against KPMG LLP and KPMG International have been resolved.”
Well! That’s some important news. We called up KPMG shortly after we read Francine’s post last week to see what they had to say about it and we were told that they’d get back to us. Unfortunately, we’re still waiting but we’re sure they’re excited, just taking the time to find the right words. Anyway, we’re here when you’ve perfected the prose. In the meantime, if you’d like to take a shot at what the response might be, pen it below.
We’ll pass along more details as they become available.
Former executives of New Century, the Southern California subprime lender that filed for bankruptcy in 2007, are the latest examples on the SEC’s “We’re Back to Cracking Skulls” tour. The SEC has filed a civil complaint against former CEO Brad Morrice, CFO Patti Dodge, and controller David Kenneally.
From the press release:
In its complaint, the SEC alleges that New Century disclosures generally sought to assure investors that its business was not at risk and was performing better than its peers. Defendants, however, failed to disclose important negative information, including dramatic increases in early loan defaults, loan repurchases, and pending loan repurchase requests. Defendants knew this negative information from numerous internal reports they regularly received, including weekly reports that Morrice ominously entitled “Storm Watch.”
The complaint also alleges that Dodge and Kenneally fraudulently accounted for expenses related to bad loans that it had to repurchase. In the face of dramatically increasing loan repurchases and a huge, undisclosed backlog of repurchase demands, Kenneally, with Dodge’s knowledge, made changes to New Century’s accounting for loan repurchases in both the second and third quarters of 2006. These undisclosed accounting changes violated generally accepted accounting principles and resulted in New Century’s improperly avoiding substantial repurchase expenses and materially overstating its financial results.
“Violated generally accepted accounting principles” has got to make more than a few people at KPMG nervous. Especially if you’re the partner that wrote, ‘As far as I am concerned, we are done. The client thinks we are done. All we are going to do is piss everybody off.’ We’re guessing he/she wasn’t on the ‘Storm Watch’ mailing list, otherwise KPMG might not have a $1 billion lawsuit on its hands.
SEC Charges Former Officers of Subprime Lender New Century With Fraud [SEC Press Relase]
SEC Charges Former New Century Executives With Fraud [WSJ]
S.E.C. Accuses 3 New Century Ex-Officers of Fraud [DealBook]