On December 7, 2009, the SEC charged three former executives of New Century Financial Corporation with securities fraud. See Securities and Exchange Commission v. Morrice et al., Civ. No. 09cv1426 (C.D. Cal. Dec. 7, 2009). A copy of the SEC’s complaint is available here. Until its bankruptcy in April 2007, New Century was one of the largest subprime lenders in the United States. The SEC’s action names New Century’s former CEO, Brad Morrice, its former CFO, Patti Dodge, and its former controller, David Kenneally.
In its complaint, the SEC alleges that Mr. Morrice and Ms. Dodge, despite knowledge of New Century’s dire financial condition, issued positive public statements to investors, including assertions that New Century’s “commitment to responsible lending is good business” and that the company was outperforming its peers. The SEC further alleges that Ms. Dodge and Mr. Kenneally, who were responsible for the company’s accounting practices, lowered New Century's cash reserves despite a rising loan-default rate, which is a violation of Generally Accepted Accounting Rules.
The SEC is seeking an order requiring the defendants to, among other things: (1) disgorge their alleged ill-gotten gains with prejudgment interest, (2) reimburse the Company for certain bonuses and incentive-based compensation, and (3) pay civil monetary penalties.