With no buyer in sight, bankrupt subprime lender New Century Financial Corp. laid off 2,000 workers Thursday, leaving the company with a skeleton crew of 250 who will stay on the job as the company liquidates itself.
Another 500 New Century employees who work in the loan servicing unit are also staying on the job as hedge fund Carrington Capital Management has purchased that portion of the business, the Los Angeles Times reports.
New Century, which employed 7,200 last year, laid off 3,200 workers when it filed for Chapter 11 bankruptcy protection in April.
Also this week, New Century revealed in a Securities and Exchange Commission filing that its former auditor, KPMG LLP, resigned on April 27, as regulators and lawyers representing shareholders and the lender itself examine the company’s past accounting practices.
The investigations center around New Century’s failure to anticipate the number of loans it would be forced to repurchase, and the profits it claimed on loans that it originated and securitized and sold to Wall Street investors.
On Feb. 7, New Century announced it was restating results for the first three quarters of 2006 because it failed to properly account for expected losses on bad loans it was forced to repurchase.
On Feb. 28, the U.S. Attorney’s Office for the Central District of California informed the company it had opened a criminal inquiry into accounting errors in the allowance for repurchase losses and trading of the company’s securities, New Century said in another SEC filing.
The New York Stock Exchange is also reviewing transactions in the company’s securities, and New Century has been named as a defendant in numerous lawsuits by stockholders alleging they bought the company’s stock at inflated prices.
New Century, which relied on 15 short-term agreements providing $17.4 billion in credit to fund loans that were securitized and sold on Wall Street, on March 8 announced that it had stopped making new loans because some of its creditors had cut off financing.
In its latest SEC filing, New Century said it had launched an internal investigation into the errors in its accounting and financial reporting of loan repurchase losses. New Century said that investigation has been expanded at the request of KPMG to include issues related to the valuation of its residual interests in loans securitized in 2006 and prior years.
New Century’s audit committee, which is conducting the company’s internal investigation, has hired its own independent lawyers and forensic accountants, the company said.
According to the SEC filing, KPMG had informed New Century that the investigations could “impact KPMG’s ability to conclude on the financial statement implications of the matters under investigation, including whether or not KPMG would be able to continue to rely on representations from management.”
