Denver New Century Financial Corporation dead in the heart of Orange County, which used to be subprime central, was the canary in the mine that not enough people heard as their demise ushered in the great meltdown for home buyers and mortgage holders. The other day a piece in the Los Angeles Times noted that that 13 former employees and directors had agreed to pay $90 million to settle all of the outstanding claims from the SEC, investors, and others. Typically, none of the defendants admitted any wrongdoing.
I had negotiated with teams of ACORN leaders and staff with these folks a number of times, including the last of the three co-founders, Brad Morrice, who had returned as CEO before one of our largest sessions and had quipped at the time that he had come back “because no one else would, “ and we all laughed. He seems to have agreed to pay back close to a half-million in ill-gotten gains.
Having dealt with him and his team, I honestly wonder if they really understood fully the “company’s deteriorating condition.” In a rarity they agreed after a brief caucus to alter broker payments in Texas when we pointed out the fact that they were incentivizing brokers to lie about the loans. Morrice was clear they had not looked hard enough and would change it immediately. When we pointed out that half of their portfolio was in “stated income” loans or what were called “liar’s loans” in the industry at the time, they kept talking babble about their computer programs being so good it would catch any problems. When we kept hammering about their inability to supervise their broker network, their general counsel (who I was pleased to see was not in the 13, so at least I can believe he wasn’t lying to me from front to back, so here’s to you, Terry Theologides!) kept saying that they turned in brokers to state attorneys general when they suspected anything.
Perhaps the truest statement, and saddest, came from Morrice as he tried to defend “interest only ARMs” (adjustable rate mortgages) by saying that he “drank his own kool-aid” and financed his own home exactly that way; I hope he at least has a roof over his head, because many former mortgage holders with New Century sure don’t!
Here’s a piece of the blurb from the LA Times where it’s all still home town news:
“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.”