Saying their research of subprime lenders such as New Century Financial Corp. was “very rosy,” Massachusetts Secretary of State William Galvin has issued subpoenas to Wall Street investment banks UBS Securities LLC and Bear Stearns & Co., the Associated Press reported Tuesday.

Galvin said he’s investigating research reports Wall Street investment firms issued on New Century and other subprime lenders. At this point in the investigation, it’s too early to say if other investment firms will be subpoenaed, he said.

The subpoenas seek records on fees and commissions earned by the firms relating to subprime lenders, and communications between hedge fund clients invested in subprime lenders, AP reported. UBS and Bear Stearns have until March 27 to turn over all documents generated by subprime lending analysts at the two firms.  

A UBS spokeswoman told AP the company is proud of its research track record in general, and a Bear Stearns spokeswoman defended the work of its New Century analyst.

The New York Stock Exchange suspended trading of New Century’s shares this week, and is taking steps to delist the company because of its financial difficulties.

In a March 8 Securities and Exchange Commission filing, the California-based lender said it had stopped funding loans because it had lost financing from at least five creditors.

One of those creditors is UBS Real Estate Securities Inc., which is demanding repayment of $1.5 billion in repurchase obligations for bad mortgage loans, according to a New Century SEC filing Tuesday.

New Century announced in February that it would be forced to restate results for the first three quarters of 2006 because it failed to properly account for losses on bad loans it was obligated to repurchase.

New Century has also revealed that it is the subject of a criminal investigation by the U.S. Attorney’s Office for the Central District of California, which is looking into trades of New Century securities, and accounting errors related to the company’s allowances for loan repurchases.

New Century is facing at least 10 lawsuits seeking class-action status to represent aggrieved shareholders.

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