Former Officers of Subprime Lender New Century Charged With Fraud

As we’ve pointed out, the federal government is devoting significant resources to identifying and holding accountable those who committed or allegedly committed fraud in the subprime industry. For example, the Securities and Exchange Commission has brought mortgage-related enforcement actions against Countrywide Financial CEO Angelo Mozilo, and senior executives, including the CEO, of American Home Mortgage Investment Corp. 

Today, the SEC took another step in that regard: it charged three former top officers of New Century Financial Corporation with securities fraud for misleading investors as New Century's subprime mortgage business was collapsing in 2006. At the time of the alleged fraud, New Century was one of the largest subprime lenders in the nation.
 
In its complaint, the SEC alleges that New Century disclosures generally sought to assure investors that its business was not at risk and was performing better than its peers. The SEC alleges, however, that the defendants failed to disclose important negative information, including dramatic increases in early loan defaults, loan repurchases, and pending loan repurchase requests. According to the SEC, the defendants knew this negative information from numerous internal reports they regularly received, including weekly reports that were entitled "Storm Watch."
 
The complaint further alleges that the defendants' caused investors substantial losses. From early 2006 to early 2007, New Century's stock price ranged from $30.00 to $50.00; and in the second half of 2006, the company raised $142.5 million by selling stock to new investors. After New Century announced in February 2007 that it would have restate its 2006 financial statements, New Century's stock price fell 36 percent to around $19.00. New Century's stock price continued to fall, and traded at less than $1 when the company filed for bankruptcy in April 2007.