The bankruptcy trustee of Irvine’s New Century Financial Corp. is suing the defunct company’s former accountant KPMG LLP, saying auditing errors led to the subprime lender’s spectacular crash in 2007.
New Century’s trustee, Alan Jacobs, of law firm Thomas, Alexander & Forrester LLP, filed lawsuits against KPMG in Los Angeles and New York.
The suits seek at least $1 billion in damages, according to reports.
Jacobs accuses KPMG,which served as New Century’s outside auditor since the company went public in 1997 to early 2007,of filing “grossly negligent audits.”
“Rather than exercise professional, independent and ethical judgment, as KPMG promised it would, KPMG acted as a cheerleader for management to keep its client happy,” the lawsuits said.
The charges mirror much of what a bankruptcy court-appointed examiner found more than a year ago.
Examiner Michael Missal last year placed the blame of New Century’s demise on both the company’s senior management as well as KPMG. The auditor engaged in at least seven improper accounting practices, Missal concluded.
KPMG said at the time it strongly disagreed with the report’s conclusion.
New Century’s spiral started in early 2007 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.
The company filed for bankruptcy in April 2007. A court-approved liquidation plan last summer was expected to pay unsecured creditors about 17 cents on the dollar.
