Creditors of Irvine-based New Century Financial Corp. have followed the lead of a court-appointed examiner by asking a judge to compel KPMG LLP to divulge details about its work for the failed subprime mortgage lender.
The move echoes an earlier request by court examiner Michael Missal, a securities enforcement specialist appointed to look into the spectacular collapse of New Century, which last year ranked as the nation’s largest lender to homebuyers with imperfect credit.
Lawyers for KPMG have refused to assist in Missal’s investigation of accounting irregularities and financial misstatements at New Century without a court order.
The unsecured creditors want to examine documents related to KPMG’s audits of New Century’s financial statements, reviews of the company’s interim financial statements and its assessments of internal controls.
The creditors said they are coordinating their probe with Missal. They said they would like to hear from KPMG audit partner John Donovan and senior manager Mark Kim.
A KPMG spokesman told the Associated Press “it’s not unusual for the work of an auditor to be reviewed in a bankruptcy case such as this.”
KPMG ended its work for New Century in April, days after the company declared bankruptcy.
The accounting firm had been New Century’s auditor since the company went public in 1997.
New Century’s spiral started in February when the company warned of a quarterly loss, projected a big drop in 2007 loans and said some 2006 results would need to be restated to fix accounting errors.
In May, the company said it also found problems with 2005 results as well.
The company isn’t likely to restate financials for either year as it winds down operations in bankruptcy.
The accounting errors are tied to the reporting of loan repurchase losses, and the company’s valuation of some residual interests in securitizations, New Century said.
