(Update: for a more complete article about the examiner’s report CLICK HERE.)
A bankruptcy examiner’s report on New Century Financial Corp. accuses the Irvine company’s auditor, KPMG, of allowing the company to change its accounting practices so it could report a profit rather than a loss in the second half of 2006.
Michael J. Missal, the bankruptcy examiner, said in the 581-page report that “New Century’s loan originations created a ticking time bomb that detonated in 2007.”
He said the company “had a brazen obsession with increasing loan originations, without due regard to the risks associated with that business strategy.”
In a statement, New Century did not address specific criticisms about the report, however it said: ““The Company is pleased that the Examiner’s report is finally completed and that we can take the next steps of confirming the plan of liquidation, therefore substantially concluding the bankruptcy process.”
The bankruptcy examiner’s report said KPMG, one of the nation’s biggest accounting firms, could be held liable for the misstatements.
KPMG spokesman Dan Ginsburg said the document is being reviewed and declined further comment.
In a phone interview, Missal said he was shocked to see the kind of accounting he saw at New Century in a “post-Enron, Sarbanes-Oxley” world.
“We found a real failure here,” he said.
Missal’s mission was to analyze the causes of the bankruptcy, not to assess the finances of the company.
New Century, once the second-largest subprime lender in the nation, filed for bankruptcy last April 2.
Click HERE to see the examiner’s report.
He said the company “had a brazen obsession with increasing loan originations, without due regard to the risks associated with that business strategy.”
That is the truest statement you’ll ever see about the NC bankruptcy.
KPMG hired a bunch of hacks with freshly minted bachelor degrees that didn’t understand the intricacies of mortgage accounting. Not only that, but KPMG’s turnover rate was atrocious, probably due to low pay, so you have a new 22 year old auditor shuffling through the door every few months. I think the management of New Century could have gotten anything past these guys.
The BK examiner is rightfully giving KPMG their fair share of blame. Shareholder lawsuits…. here we come!
I recall the OC register did a piece on ex-New Century employees. It included a pic of this hot chick starting some sort of lending service. If she was a typical employee, there must have been mucho eye candy at the place, a real cathouse. I would imagine the poor girl is back to waiting tables or dancing now that the bloom is off the easy-money rose.
So when are the execs of new century and the accountants at KPMG being hauled off to serve years in prison? they are directly responsible for this subprime/mortgage melt-down which, in turn, costs innocent people their jobs. Please don’t tell me none of these slobs from New Century will not do hard time, and liquidate any and all of their private assets. You play with people’s lives, you need to pay when it all goes south.
I agree with Liar Loan about public accounting in general, and the Big Firms specifically. The pay is so low in most firms because they know that these people have to “put their time in” in order to get their licenses, and the Big Firms know that their company name on a resume goes much further. And that is a shame, because it should actually be a detriment to a resume, time served in a Big Firm.
Most concerning to me was KPMG’s plaintive desperation to retain New Century as a client. As a former Big 4 auditor, I find that the pressure to retain the client was paramount over everything. What makes New Century’s failure worse than Enron’s, to me, is the lack of understanding on KPMG’s part of its own client’s business.
Shiny,
The mortgage world had/has LOTS of eye candy! I remember working at one medum sized lender in ‘02-’03 and I sat next to the Processing and Escrow departments (staffed almost entirely by women at most mortgage companies)….it was like working at a Modeling agency every day! I worked “out in the world” in other industries prior to getting into lending in 2001 and no where I worked, even the employer with over 2,000 employees had the kind of “talent” even the smallest mortgage company had!
New Century was the worst of the worst! No standards and they openly encouraged “Boiler Room” tactics by their sales force! I agree, people should go to jail for what they wrought! The Federal Government will likely never allow a “Subprime industry” such leeway again…it attracts the soul-less predators into it’s leadership positions…those types can’t be trusted to be anything but greedy!
I think the Matt and the Register need to do a piece on…Ex mortgage babe from OC, where are they at now?
It’s true, KPMG do hire fresh faces out of college, brain wash them, then send them out to clients armed with laptops and a binder of SOX guidelines. However, it’s the senior partner or manager that signs off their work. I know, because I worked with them before. At the end of the day, they are responsible for their work.
btw, E&Y has the hottest auditors!
shiny and Larry P are exactly right. There were a ton of hotties at these companies… and still are at the ones that survived. I don’t know what the exact reason is, but the workforces were younger than other industries so that was part of it.
I wouldn’t say all the chicks at NCEN were hot. There were some real dogs too (just like out in the world). Now in all fairness, these dogs would have to sit in the back of the office as appearances are everything at a Lender. Furthermore, when it was lunch time these dogs were not allowed to leave their desk but rather had feedbags placed over their face so they could graze on their kibbles and bits while they still worked. We had our fair share of dogs, I really don’t like people thinking we were not subjected to this atrocity also.
The new guys had to sit next to the dogs until they could prove themselves worth to sit next to the ex-strippers from Mr. J’s.
yuck foo: Come to work in a patent law office if you want to appreciate ugly. Hey, I have an idea: to all former exotic dancers who became mortgage workers and are now laid off: please consider the legal field. We are starved for any lookers.
First of all, where was the SEC when all of this happened? Second, IF Wall Street was not buying the loans then there would have been no companies like NC or Ameriquest or any of the others. Maybe when the market turns around and the Subprime lenders come back, and they will they will have someone like myself watching the Real Estate market, as I called the market collapse a year before it happened. It is not rocket science.
Lou Pacific
Real Estate and Mortgage Company Consultant
Serving OC for 30 Years
I wanna know when some former Exec heads are gonna roll. The founding partners and the senior mgmt team had serious involvement in this (dont anyone dare say they didnt). I understand that KPMG propogated the problem, perhaps with duds for accts like said above, but I wanna know when New Century execs are going to jail. And I wanna know if the court will make them forfeit their millions made illegally.
Matt-
Your update link goes to a Dalai Lama website.
link fixed. thanks liar loan.
Lou is correct, there wouldn’t be any subprime lenders if the government didn’t allow the creative financing programs, and if Wall Street bankers and investors weren’t buying them (the funding is from them). I have been unemployed for almost a year now, others have to sell their homes. It’s not just NC, all subprime and A lenders are suffering. New Century may have had some accounting issues, and I won’t pretend to know the details as I was in a different department, but while they were solvent, before the market turned, I believe they worked within all laws and legal guidelines. It’s kind of like blaming the companies that fell during the great depression. NC is not the only one. What I really hate is everyone calling all Executives at NC liars and cheats, don’t you think that they wouldn’t want their company to fail and have thousands lose their jobs I don’t believe they failed on purpose. The market declined faster than I think anyone expected. There is always internal insight and measures put in place that YOU, John Public are not privy to and never will be. But, by reading all of this feedback it seems very obviously that you don’t read all of the published info anyway, and only want to talk about Hot Babes as if this forum is a public dating site. This happens in job boards and everywhere else I go. You MEN need to get a grip - no pun intended! The biggest profit earners were the Wall Street and investment bankers; while all of the subprime lenders were dying, they had their most profitable years in history, and they don’t have to go to jail or give it back. So, where is the line in the sand drawn? Now it’s not NC but KPMG? People have to take responsibility and learn from this executives and employees alike. For myself, I am actually checking out financial reports, stock trends and stability of all companies I am interviewing with to hopefully get placed with a stable one.