New Century Trustee Files Suite Against KPMG

KPMG is being sued for “no less than $1 billion in compensatory and consequential damages” by the bankruptcy trustee for New Century Financial.

The trustee overseeing the bankruptcy of subprime lender New Century Financial Corp. filed suit against its auditor, KPMG LLP, claiming that “reckless and grossly negligent audits” helped accelerate the firm’s collapse two years ago.

The lawsuits filed Wednesday said that specialists at KPMG tried to point out errors in New Century’s financial statements but were silenced by the KPMG partner in charge of the audits “to protect KPMG’s business relationship with, and fees from, New Century.”

— KPMG Is Sued Over New Century

KPMG spokesman Dan Ginsburg said, “KPMG acted in accordance with professional standards in New Century, and we will vigorously defend our audit work. Any implication that the collapse of New Century was related to accounting issues ignores the reality of the global credit crisis. This was a business failure not an accounting issue.”

New Century disclosed a total of $10.4 million in fees between fiscal 2002 and 2005.

Fiscal Year	Audit Fees	Total Fees	Fees-to-Revenue
2005	$2,319,347	$3,808,781	0.16%
2004	$1,783,100	$3,576,708	0.21%
2003	$705,900	$1,625,959	0.17%
2002	$355,000	$1,450,000	0.24%
		$10,461,448

Source: AMESRGI