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Restatements, practices prompt subprime probes

Posted On: Mar. 18, 2007 12:00 AM CST

Some subprime lenders are facing investigations from state or federal authorities.

A spokeswoman for Irvine, Calif.-based New Century Financial, one of the nation's largest subprime lenders, confirmed that the company is being investigated by federal officials but declined to provide details beyond those provided in a recent 8-K filing.

That report, dated March 13, states that the company received a letter from the United States Attorney's Office for the Central District of California on Feb. 28 indicating that it was conducting a criminal inquiry under the federal securities laws in connection with trading in the company's securities, as well as accounting errors regarding the company's allowance for repurchase losses.

New Century reported that it later received a grand jury subpoena requesting certain documents.

The report also notes that the company had received a letter from the Securities and Exchange Commission stating that it was conducting a preliminary investigation and requesting documents. The 8-K report also stated that the SEC had previously sought a meeting with company officials to discuss the events leading up to New Century's announcement of the need to restate its historical financial statements.

A spokesman for the SEC declined to comment.

On a separate front, Massachusetts's Secretary of Commonwealth William Galvin announced March 13 that the securities division of his office has subpoenaed documents from UBS Securities L.L.C. and Bear, Stearns & Co. Inc. concerning their possible role in the demise of subprime lenders, including but not limited to New Century. A spokesman in Mr. Galvin's office said both investment firms are being targeted because analysts for each firm issued financial reporting upgrades to New Century at a time when the company's business began to turn sour.

UBS declined to comment on the subpoena; representatives of Bear, Stearns could not be reached.