Subprime mortgage lender New Century Financial Corp., its financial footing crumbling, was all but kicked from the New York Stock Exchange Tuesday, while federal investigations into accounting errors and trading of its stock intensified.
The NYSE suspended trading in shares of New Century and began taking steps to delist its shares from the exchange, citing the company’s worsening financial prospects and allegations it has defaulted on obligations to its lenders.
The exchange had halted trading of New Century shares on Monday, pending an evaluation of the company’s financing efforts.
In a Securities and Exchange Commission filing Tuesday, New Century said that it received a grand jury subpoena for “certain documents” as part of an ongoing criminal inquiry by federal prosecutors in California.
Last month, the U.S. Attorney’s Office for the Central District of California notified New Century that it was conducting a criminal inquiry into trading in the company’s stock and into accounting errors over loan repurchase losses.
The Pacific Regional Office of the SEC has also notified the company that it is conducting a preliminary investigation and has also requested documents, New Century said Tuesday.
The move follows an earlier request by the SEC to meet with company officials to discuss the company’s decision to restate financial results over three quarters in 2006.
New Century spokeswoman Laura Oberhelman said the company was not commenting beyond what it said in its SEC filings and a press release on the NYSE action.
The Irvine, Calif.-based company, which was founded in 1995, had grown into the nation’s second-largest lender to homebuyers with poor credit histories. But like other subprime lenders, New Century has been struggling to secure the loans it needs to finance mortgages as the housing market has declined.
Last month, the company said it lost track of how frequently borrowers missed payments on their mortgages. Because New Century’s books didn’t reflect how often borrowers defaulted and how likely borrowers were to default in the future, the value of the company’s loan portfolio was overstated.
Last week, it stopped accepting all new loan applications because it hasn’t been able to raise enough capital or renegotiate its existing financial agreements. It has since disclosed that all of its lenders have slashed funding or announced their intent to cut it off altogether. The lenders have alleged the company failed to make payments.
The company is now under pressure from several lenders to pay back what it owes them. One of its backers, UBS Real Estate Securities Inc., is demanding New Century’s subsidiaries pay immediately some $1.5 billion in repurchase obligations for outstanding mortgage loans, according to documents filed Tuesday with the SEC.
The company also has had several shareholder lawsuits filed against it.
And at least four director-level executives at New Century have sold shares in the company in recent weeks.
Michael M. Sachs, 64, a member of the company’s board of directors since 1995, sold 140,000 shares on Feb. 8, at an average price of $19.62 a share, reaping some $2.7 million, according to documents filed with the SEC.
Brad A. Morrice, New Century’s president and CEO, sold 5,898 shares last month and another 4,020 shares in January, for a total of $300,220.
A spokesman for the U.S. attorney’s office in Los Angeles declined to comment on the investigation.
Meanwhile, Massachusetts’ top securities regulator on Tuesday also waded into the subprime lending plight, issuing subpoenas to UBS Securities LLC and Bear Stearns & Co. Inc. in hopes of discerning whether the firms’ research analysis ignored mounting financial problems at New Century and other subprime lenders.
New Century’s dire financial straits fueled speculation that it might seek bankruptcy protection. Other subprime lenders, including Ownit Mortgage Solutions and Mortgage Lenders Network Inc., have done so in recent months.
New Century’s stock has plummeted 96.8 percent since a 52-week high of $51.97 last May. The stock traded last at $1.66.
The company expects its shares to trade in the over-the-counter market following its delisting from the NYSE.
