Brad A. Morrice et al.

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21609 / July 30, 2010

Accounting and Auditing Enforcement Release No. 3162 / July 30, 2010

Securities and Exchange Commission v. Brad A. Morrice et al., Civil Action No. CV 09-01426 DDP (C.D. Cal.)

SEC SETTLES WITH FORMER OFFICERS OF SUBPRIME LENDER NEW CENTURY

On July 29, 2010, the Commission accepted settlement offers from three former officers of New Century Financial Corporation. Brad A. Morrice, the former CEO and co-founder; Patti M. Dodge, the former CFO; and David N. Kenneally, the former controller, consented to the relief described below without admitting or denying the allegations in the Commission's Complaint. The settlement offers, which have been submitted to the Court for approval, are contingent upon the Court's approval of a global settlement in In re New Century, Case No. 07-931-DDP (C.D. Cal.).

The Commission's complaint alleges, among other things, that New Century's second and third quarter 2006 Forms 10-Q and two late 2006 private stock offerings contained false and misleading statements regarding its subprime mortgage business. The complaint further alleges that Morrice and Dodge knew about certain negative trends in New Century's loan portfolio from reports they received and that they participated in the disclosure process, but they did not take adequate steps to ensure that the negative trends were properly disclosed. The Commission's complaint also alleges that in the second and third quarters of 2006, Kenneally, contrary to Generally Accepted Accounting Principles, implemented changes to New Century's method for estimating its loan repurchase obligation and failed to ensure that New Century's backlog of pending loan repurchase requests were properly accounted for, resulting in an understatement of New Century's repurchase reserve and a material overstatement of New Century's financial results. The complaint further alleges that Dodge was told of the methodology changes and the backlog of repurchase requests but did not ensure that they were properly accounted for and disclosed.

To settle the charges, Morrice consented to the entry of a permanent injunction prohibiting him from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and the internal controls, false statements to accountants, and certification provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-2 and 13a-14 thereunder; and from aiding and abetting violations of the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. He also agreed to disgorge $464,354 with $76,991 in prejudgment interest thereon, and to pay a $250,000 civil penalty.

To settle the charges, Dodge consented to the entry of a permanent injunction prohibiting her from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and the books and records, internal controls, false statements to accountants, and certification provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-1, 13b2-2, and 13a-14 thereunder; and from aiding and abetting violations of the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. She also agreed to disgorge $379,808 with $70,192 in prejudgment interest thereon, and to pay a $100,000 civil penalty.

To settle the charges, Kenneally consented to the entry of a permanent injunction prohibiting him from violating the antifraud provisions of Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder, and the books and records, internal controls, and false statements to accountants provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder; and from aiding and abetting violations of the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. He also agreed to disgorge $126,676 with $23,324 in prejudgment interest thereon, and to pay a $32,500 civil penalty.

Each of the defendants also agreed to be barred for five years from serving as an officer and director of a public company.

Disgorgement, prejudgment interest, and penalties will be distributed to harmed investors pursuant to the Final Judgments.

For further information see LR-21327; AAER No. 3079 (December 7, 2009).

 
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