New Century Financial Corporation, Irvine, California, then the nation's second largest originator of subprime mortgage loans, announced on Feb. 7, 2007, that it would have to restate its financials for the first three quarters of 2006. Following this announcement, New Century's descent was dramatic and swift. Its stock price dropped precipitously, and the company disclosed on March 2, 2007, that it would not file its 2006 annual report on time. This revelation and other developments prompted increased margin calls by the company's lenders, accompanied by their refusal to provide further financing. As a result of these financial pressures, New Century stopped accepting loan applications on March 8, 2007, and the New York Stock Exchange (NYSE) delisted the company's securities a few days later. On April 2, 2007, less than two months after the restatement announcement, New Century and many of its affiliates filed for bankruptcy protection. Shortly thereafter, New York-based KPMG LLP resigned as the company's independent auditor. In early June 2007, the U.S. Bankruptcy Court for the District of Delaware issued an order granting the U.S. trustee's motion for authorization to appoint an examiner in the New Century bankruptcy proceeding. The court's order called for an examiner to, among other things, "investigate any and all accounting and financial statement irregularities, errors and misstatements" and to prepare a report of such findings. The order also required that the examiner identify any potential claims that the debtors' estates may have as a result of any improper conduct. Pursuant to the court's order, the trustee appointed one of the authors of this article, Michael J. Missal, as examiner. K&L Gates LLP, Washington, D.C., served as counsel to the examiner in the investigation.
