Ex-New Century Managers to Pay $1.5 Million Over Subprime Lender's Failure
Three former New Century Financial Corp. executives agreed to pay more than $1.5 million to settle U.S. regulatory claims that they failed to disclose risk in the firm’s subprime-mortgage business before it collapsed in 2007.
Brad Morrice, the company’s former chief executive officer, will return $464,354 in ill-gotten profits plus $76,991 in interest and pay a $250,000 fine, the Securities and Exchange Commission said today in a statement posted on its website. Patti Dodge, the ex-finance chief, will pay $550,000, and David Kenneally, the former controller, will pay $182,500.
The SEC accused the executives in December of failing to disclose increases in early mortgage defaults, loan buybacks and pending repurchase agreements. New Century was the No. 2 subprime lender when it filed for bankruptcy in April 2007, a failure that foretold the credit market freeze that led to the worst economic crisis since the Great Depression.
Morrice, a co-founder of Irvine, California-based New Century, knew the market for home loans to borrowers with poor credit histories was weakening and began a weekly summary he entitled “Storm Watch” in September 2006, the SEC said in its complaint. He failed to share his assessments with New Century investors, the regulator said.
Kenneally inflated New Century’s financial results in the second and third quarters in 2006 by understating expenses related to loan repurchases, the SEC said. The company reported a $90 million profit in the third quarter of 2006 when it actually had an $18 million loss, the agency said.
The former New Century executives agreed to settle without admitting or denying the SEC’s allegations, the agency said.
Josh Epstein, a spokesman for Morrice at law firm Proskauer Rose in New York, didn’t immediately return a phone call seeking comment. Dodge’s attorney, Terry Bird, and Kenneally’s lawyer, John Vandevelde, also didn’t immediately return phone calls.
SEC Investigation
The SEC has conducted a broad investigation of the mortgage-market collapse, which led to more than $1.8 trillion of writedowns and credit losses since the start of 2007.
The agency sued former Countrywide Financial Corp. CEO Angelo Mozilo in June 2009, claiming he withheld information about his firm’s deteriorating financial condition and traded on nonpublic information in selling shares. Mozilo, who co-founded what was once the U.S.’s biggest mortgage lender, has denied wrongdoing. Countrywide was sold to Bank of America Corp. in 2008.
To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
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