Thirteen former officers and directors of New Century Financial Corp. agreed to pay more than $90 million to settle all civil claims in a series of federal and private lawsuits stemming from the collapse of the Irvine subprime lender in the early stages of the mortgage meltdown.
The settlement, which is subject to approval by a federal judge, appears to mark a final chapter for New Century, which was the nation’s second-largest lender to borrowers with credit problems before its demise in April 2007.
The collapse was an early marker in the crisis that began with the crumbling of the mortgage and housing markets, caused the near-paralysis of credit markets around the world and triggered a global recession.
The agreement settles class-action lawsuits brought by investors, a suit by a private equity firm, a claim filed by the trustee in New Century’s bankruptcy case and a lawsuit brought by the Securities and Exchange Commission against three former New Century executives.
In the second half of 2006, the company raised $142.5 million by selling stock to new investors, the SEC suit noted. “These investments were wiped out as New Century’s fraud was revealed to the public” in 2007, the suit alleged.
None of the defendants admitted any wrongdoing. New Century co-founder Brad Morrice said in a statement that he hoped the settlement “would make up for some of the losses suffered and provide closure to me and the shareholders.”
Morrice, a former chief executive of the company, was one of the three who were sued in December by the SEC. The agency accused them of concealing the company’s deteriorating condition in the period before it shut down lending and ultimately filed for bankruptcy protection.
As part of the settlement, all three agreed to be banned from acting as officers and directors of any public company for five years and to make six-figure payments to the SEC.
Morrice agreed to pay $464,354 in allegedly ill-gotten gains, plus $76,991 in interest and a $250,000 fine. Patti M. Dodge, a former chief financial officer, agreed to pay $379,808 plus $70,192 in interest, and pay a $100,000 civil penalty. Former controller David N. Kenneally agreed to pay $126,676 with $23,324 in interest and a $32,500 civil penalty.
The case was among several high-profile suits the SEC has brought in the aftermath of the mortgage meltdown.
In an agreement this month, Goldman Sachs agreed to pay $550 million to settle accusations of fraud related to mortgage-linked securities.
Former Countrywide Financial Corp. executives Angelo Mozilo, Davis Sambol and Eric Sieracki are defendants in another SEC mortgage case, which is scheduled for trial Oct. 19.
Nearly three years before the SEC lawsuit, New Century had disclosed in an SEC filing that federal investigators were conducting a criminal inquiry of accounting errors by the company and of trading in New Century stock. It wasn’t immediately clear if that probe was continuing.
Attorneys for Dodge and Kenneally didn’t respond to requests for comment.
In his statement, Morrice said he was making the settlement because of family considerations. He said he had worked hard to save the company after becoming its chief executive in 2006, when the first rumblings of the mortgage meltdown were being felt.
“In 1995, I joined with others to create New Century Financial, and I worked hard to build it into a successful business that brought the dream of U.S. home ownership to many who could not otherwise afford it,” he said.
Other former directors and officers involved in the broader settlement were co-founder Robert K. Cole, the estate of co-founder Edward Gotschall, Fredrick J. Forster, Michael M. Sachs, Harold A. Black, Donald E. Lange, Terrence P. Sandvik, Richard A. Zona, Marilyn A. Alexander, David Einhorn and William J. Popejoy.