New Century Financial Corporation Agrees to Settlement In Shareholder Class Action
August 2010 - In the New Century Financial Corporation class action a settlement has been reached with the company's officers and directors, KPMG, and its underwriters J.P. Morgan Securities, Deutsche Bank Securities and Morgan Stanley on August 9, 2010. Under the terms of the settlement, which has been preliminarily approved by Judge Pregerson of the Central District of California, plaintiffs will receive a total of $125 million. More than half, $65 million, will come from the officers and directors. KPMG will contribute $44.75 million, and the underwriters will provide the remaining $15 million. The settlement follows an SEC settlement with former New Century officers on July 29, 2010, which was described in this Bulletin on August 6, 2010.
February 2007 - According to a press release dated February 9, 2007, the complaint charges New Century and certain of its officers and directors with violations of the Securities Exchange Act of 1934. New Century is a real estate investment trust that through its subsidiaries operates mortgage finance companies.
Specifically, the complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company’s business and financial results and concealed the following material adverse facts from the investing public: (a) the Company lacked requisite internal controls, and, as a result, the Company’s projections and reported results issued during the Class Period were based upon defective assumptions and/or manipulated facts; (b) the Company’s financial statements were materially misstated due to its failure to properly account for its allowance for loan repurchase losses; (c) the Company’s financial statements were materially misstated due to its failure to properly account for its residual interests in securitizations by failing to timely write down the impaired asset; (d) given the deterioration and the increased volatility in the subprime market, the Company would be forced to tighten its underwriting guidelines which would have a direct material negative impact on its loan productions going forward; and (e) given the increased volatility in the subprime market, the Company had no reasonable basis to make projections about its ability to maintain its current mortgage loan production levels for 2007. As a result of these false statements, New Century stock traded at artificially inflated prices during the Class Period, reaching a high of $51.22 per share on April 28, 2006. Defendants took advantage of this inflation, selling 665,334 shares of their New Century stock for proceeds of over $26.6 million.
The complaint further alleges that on or around February 7, 2007, after the market closed, New Century announced that it will have to restate its consolidated financial results for the first three quarters of 2006 to correct errors the Company discovered in its application of generally accepted accounting principles regarding the Company’s allowance for loan repurchase losses. On this news, New Century’s stock collapsed $10.92 per share to close at $19.24 per share on February 8, 2007, a one-day decline of 36%, on volume of 25 million shares, 17 times the average three month volume.