New Century executives charged with fraud

New Century executives charged with fraud

Regulators say top executives at the now bankrupt subprime lender tried to hide rising defaults on dubious loans.

WASHINGTON (Reuters) -- U.S. securities regulators Monday charged three former executives at now-bankrupt lender New Century with fraud, the latest government attempt to bring bad actors in the subprime market to justice.

The U.S. Securities and Exchange Commission accused the executives of trying to disguise New Century's rapidly deteriorating performance from investors while releasing weekly internal reports entitled "Storm Watch."

New Century, once one of the largest independent providers of home loans to people with poor credit, filed for bankruptcy two years ago amid mounting customer defaults.

The SEC said it is seeking civil penalties and disgorgement of funds from the defendants. They are former Chief Executive Brad Morrice, former Chief Financial Officer Patti Dodge, and former Controller David Kenneally.

Attorneys for the former executives did not immediately return calls seeking comment.

The failure of New Century rippled across the U.S. mortgage lending industry, sparking a string of other bankruptcies that roiled financial markets as banks booked losses on billions of dollars in mortgage-linked securities at the heart of the global financial crisis.

"New Century shareholders took a double-hit: The company's mortgage assets and business performance became increasingly impaired, and management manipulated its numbers and concealed its deteriorating performance," said SEC enforcement director Robert Khuzami in a statement.

The SEC said New Century sought to assure investors that its business was not at risk and failed to disclose dramatic increases in early loan defaults, loan repurchases and pending loan repurchase requests.

The government also said that Dodge and Kenneally fraudulently accounted for expenses related to bad loans that it had to repurchase.

In one of its largest pending subprime cases, the SEC in June charged prominent banker Angelo Mozilo, who built the largest U.S. mortgage lender, with securities fraud and insider trading.

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