Justice Dept. Report Accuses KPMG

It was almost a year ago I posted this headline, New Century, Sub-Prime Lender, Bankrupt!

Now the NY Times reports an independent report commissioned by a division of the Justice Department concludes “improper and imprudent practices” by New Century were condoned and enabled by its auditors, KPMG.

The 580-page report documents how New Century lowered its reserves for loans that investors were forcing it to buy back even as such repurchases were surging. Had it not changed its accounting, the company would have reported a loss rather a profit in the second half of 2006. The company first acknowledged that its accounting was wrong in February 2007 and sought bankruptcy protection less than two months later as its lenders stopped doing business with it.

Who benefitted?

The profit was important because it allowed executives to earn bonuses and convince Wall Street that it was in fine shape financially when in fact its business was coming apart, the report contended.

“A spokeswoman for KPMG, Kathy Fitzgerald, denied the accusations.”

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