KPMG sued over New Century Financial’s collapse
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KPMG International, which oversees the fourth-largest U.S. accounting firm, was sued Wednesday by the trustee for bankrupt subprime lender New Century Financial Corp. over claims it failed in its role as “gatekeeper.”
Negligent audits and reviews by KPMG, the U.S. member firm of KPMG International, led to New Century’s collapse, according to lawsuits filed in state court in Los Angeles and federal court in New York. The suits, filed against both KPMG International and its U.S. unit, seek at least $1 billion in damages.
“Once an auditing firm lacks independence, then their audits aren’t worth the paper they’re written on,” said Steven Thomas, an attorney for New Century trustee Alan M. Jacobs. “KPMG had a duty directly to New Century and a duty directly to the public.”
New Century, once the second-biggest U.S. subprime mortgage lender, filed for bankruptcy in April 2007 after state regulators revoked its lending licenses and federal officials started two investigations. The company won court approval of a bankruptcy liquidation plan in July that pays unsecured creditors as much as 17 cents on the dollar.
KPMG spokesman Dan Ginsburg said the company hadn’t yet seen the complaint and denied any wrongdoing.
“Any implication that the collapse of New Century was related to accounting issues ignores the reality of the global credit crisis,” Ginsburg said.
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