NEW YORK – Subprime mortgage lender New Century Financial Corp.'s (NEW) problems deepened Tuesday as the New York Stock Exchange took steps to delist its shares and the company disclosed a federal prosecutor in California is conducting a criminal investigation into its accounting errors and trading in its securities.
The company also disclosed that the Securities and Exchange Commission was conducting a preliminary inquiry into the accounting errors that inflated the value of its loan portfolio.
New Century, based in Irvine, Calif., is the nation's second-largest subprime lender. It specializes in lending money to prospective home buyers who have poor credit histories.
But like other subprime lenders, New Century has been having problems obtaining the short-term lending facilities needed to finance mortgages.
Last month, New Century said it lost track of how frequently these 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.
On Tuesday, the NYSE suspended trading in shares of New Century as it began steps to delist its shares from the exchange. The company expects its shares to trade in the over-the-counter market following the delisting.
The NYSE had halted trading of New Century shares on Monday, pending an evaluation of the company's financing efforts.
In an SEC filing Tuesday, New Century said federal prosecutors and securities regulators are seeking documents as part of investigations started two weeks ago into the accounting errors.
It said the U.S. Attorney's Office for the Central District of California subpoenaed "certain documents" in its criminal inquiry into those errors as well as into trading in the company's stock before the errors were disclosed to the public.
The SEC also requested documents, New Century said, and asked for a meeting with the company to discuss the events preceding the accounting errors.
Tuesday's filing stopped short of the bankruptcy announcement some expected. New Century has stopped issuing new loans as its lenders have cut the company off from borrowing more money. New Century also faces a spate of investor lawsuits.
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.