SEC Enforcement Proceedings Related to New Century - 3 People Affected

Just read the September 13, 2010 edition of the SEC News Digest and saw the penalties on two CPAs and one attorney related to an issuer named New Century.  All 3 were suspended from practicing for three years before the Commission.

While all 3 were related, I found the second one the most interesting: 

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 Dodge knew about certain negative trends in New Century's loan portfolio from reports she received and that she participated in the disclosure process, but she did not take adequate steps to ensure that the negative trends were properly disclosed. In addition, the Commission's complaint alleges that in the second and third quarters of 2006, New Century, contrary to Generally Accepted Accounting Principles, changed its method for estimating its loan repurchase obligation and failed to account for a backlog of pending loan repurchase requests, 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. (Emphasis added)

This is something we can continue to hear about at SEC educational seminars:  disclose, disclose, disclose.  Failure to disclose here cost plenty.

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Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies. Joel writes observations on different matters and especially on working with and using LinkedIn. He thinks he has a sense of humor.

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