Fed probe of lender to check for fraud

first_imgFederal investigators looking into New Century Financial Corp. will be examining whether admitted accounting errors by the mortgage lender specializing in high-risk loans were the result of sloppy bookkeeping or fraud, legal experts said Thursday. Among the areas that will be probed: whether executives began dumping their shares last year because they knew the company was headed for trouble. “The key issue on both insider trading and securities or accounting fraud is going to be knowledge and intent,” said attorney Michael Levy, who has represented Enron Corp., among other companies targeted by criminal probes, and also was an assistant U.S. attorney in Washington. “The question is: Did individuals at the company know that the accounting was improper and nevertheless failed to correct it or trade based on that information?” he said. The Securities and Exchange Commission and the U.S. Justice Department are looking into the actions taken by New Century and its officers since the company disclosed last month that it failed to accurately tally losses from loan repurchases and that it would have to restate financial results for the first three quarters of 2006. In the wake of the revelation, the company has been left on the brink of bankruptcy, as creditors have cut off funding or taken steps to do so, many demanding the company buy back billions in mortgage loans. Company stock has tumbled 96.8 percent since its 52-week high of $51.97 last May. It was suspended from the New York Stock Exchange this week. In addition, New Century faces several shareholder lawsuits that claim its top executives and directors misled investors while selling shares before the stock took a dive. Officials with the U.S. Attorney’s Office in Los Angeles, who are handling the criminal inquiry, declined to comment, citing the ongoing investigation. 160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set!last_img read more