Another "Storm" For New Century

Three former executives from New Century -- one of the once largest, now defunct, subprime mortgage lenders -- were charged today with fraud. There have been surprisingly few orange jumpsuits for financial executives tied to the mortgage market's collapse. That won't change here, as the penalties the SEC seeks are merely civil. But at least one aspect of the case against New Century looks pretty solid.

Like any complaint, this one is not cut-and-dry. But this portion from the SEC's release looks particularly damning:

In its complaint, the SEC alleges that New Century disclosures generally sought to assure investors that its business was not at risk and was performing better than its peers. Defendants, however, failed to disclose important negative information, including dramatic increases in early loan defaults, loan repurchases, and pending loan repurchase requests. Defendants knew this negative information from numerous internal reports they regularly received, including weekly reports that Morrice ominously entitled "Storm Watch."

(Brad A. Morrice is the former CEO and co-founder of New Century and one of the executives the suit is being brought against.)

Now listen: I don't know how this case will ultimately turn out. But if you have an internal weekly report circulating called "Storm Watch" while telling shareholders that there are clear skies ahead, then I'm not sure how much more obvious management's intentional misdirection could be. I know that if I were on a jury this evidence would speak pretty loudly.

Even though there are no criminal charges for this case, Matthew Padilla at the Orange County Register's Mortgage Insider blog notes:

In addition, the SEC is seeking a severe personal penalty against the three: a bar against ever again serving as officers or directors of a publicly traded company.

Of course, that's in addition to monetary damages. Barring these individuals as serving in these roles for any publicly traded company is a pretty serious consequence. It would almost certainly frustrate their future job opportunities and potential income. So any shareholders angry at these executives might at least feel some justice has been served if this penalty results.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus


How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.


Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.


The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.


Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.


Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses


Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In