A highly anticipated bankruptcy examiner's report on New Century Financial Corporation, unsealed Wednesday, has meant a bonanza in fees for its author, Kirkpatrick & Lockhart Preston Gates Ellis partner Michael Missal.
New Century, once the second-largest originator of subprime mortgage loans, filed for Chapter 11 in April 2007 after a restatement of its 2006 financial statements sent shares plummeting. Last June the U.S. trustee appointed Missal to examine New Century's collapse.
Since then the Delaware federal bankruptcy court has approved $10.5 million in fees and expenses for Missal and K&L Gates, according to the latest fee application. On Tuesday the firm requested an additional $1.6 million.
Missal, an internal investigation veteran, was the chief examiner in the WorldCom bankruptcy. He also handled CBS Corporation's internal investigation into Dan Rather's report on "60 Minutes" about President Bush's time in the National Guard.
In his New Century report, which numbers 581 pages, Missal concludes New Century "engaged in a number of significant improper and imprudent practices." Loan originations were increased to "dangerous and ultimately fatal levels," and, the report says, New Century engaged in at least seven wide-ranging improper accounting practices from 2005 to 2006. The various causes of action "could seek millions of dollars in recoveries," the report says.
In a statement, Irvine, Calif.–based New Century said it "is pleased that [Missal's] report is finally completed and that we can take the next steps of confirming the plan of liquidation, therefore substantially concluding the bankruptcy process." New Century is represented by O'Melveny & Myers partner Suzzanne Uhland. Missal's report also says New Century's estates can sue auditing firm KPMG for professional negligence and negligent misrepresentation based on audits and reviews. The report says KPMG endorsed the questionable accounting practices.
"We strongly disagree with the report's conclusions concerning KPMG," spokesman Dan Ginsburg said in a statement. "We believe that an objective review of the facts and circumstances will affirm our position." KPMG is represented by Sidley Austin partner Michael Kelley, who did not immediately return a call for comment.
Missal says the investigation was just as challenging as WorldCom's, given the shorter time period he had to work within. Delays in document production resulted in a deadline extension in September. KPMG initially refused to cooperate in the investigation, forcing Missal to issue a subpoena.
Several documents were produced only after the investigation ended, while Missal was drafting the report, Missal says. These included about 750,000 e-mails that New Century produced. "We felt we had enough information to make the findings that we did," Missal says. Expect plaintiffs to dive into the rest.
