Three former executives of New Century Financial Corp. — one of the most prominent subprime lenders during the housing boom — have been charged with securities fraud for allegedly misleading investors.
The executives allegedly failed to disclose important information about the company’s performance in 2006, including dramatic increases in early loan defaults, loan repurchases and pending loan repurchase requests, the Securities and Exchange Commission said in a complaint.
The complaint names former New Century Chief Executive Officer Brad A. Morrice of Laguna Beach, Calif., former Chief Financial Officer Patti M. Dodge of Irvine, Calif., and former controller David N. Kenneally of Rossmoor, Calif.
Attorneys for the three former executives named in the complaint denied the allegations.
Kenneally is accused of making changes to the company’s accounting for loan purchases in the second and third quarters of 2006, when investors were stepping up demands that New Century repurchase loans the company originated. The changes, allegedly made with Dodge’s knowledge, violated generally accepted accounting principles and resulted in New Century overstating its financial results, the SEC charged.
New Century raised $142.5 million by selling stock to new investors in the second half of 2006. The company announced in February 2007 that it would have restate its 2006 financial statements, and filed for bankruptcy two months later.
In June, the SEC charged former Countrywide Financial CEO Angelo Mozilo and two other former executives with securities fraud, for allegedly misleading investors about the risks the company took to build and maintain market share. Mozilo was also accused of insider trading for selling his Countrywide stock based on nonpublic information for nearly $140 million in profits. All three executives have denied wrongdoing.
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