The Federal Deposit Insurance Corp. barred the former controller of New Century Financial Corp., once the third-largest subprime lender, from working as a contractor for the agency after he was sued for alleged securities fraud, a person familiar with the matter said Wednesday.
David Kenneally until this week worked at Mir Mitchell & Co., an Irving, Texas, company that provides management, accounting, loan servicing and investigations for the FDIC, said Andrew Gray, an agency spokesman. The Securities and Exchange Commission sued him Dec. 7. At its peak, New Century made $50 billion in mortgage loans a year and had more than 7,000 employees.
The FDIC's budget is to rise by 56% in 2010, to $4 billion, including $1.83 billion for contractors to handle bank failures, which so far this year total 133.
Finding experts to investigate institutions weakened by defaulted loans may involve hiring people who worked for the original lenders, said James Cox, a law professor at Duke University in Durham, N.C.
"You'd like to hire people who know something about the industry," Cox said. "But you've got to be careful when making the selection of who you're going to hire."
Kenneally, 47, a resident of Rossmoor, Calif., was sued for allegedly inflating New Century's financial results. He denies the allegation and was given 21 days to file a response to the lawsuit.
He was barred from working on FDIC matters a week after the SEC suit was filed, according to the person, who asked not to be identified because the matter is private.
Mir Mitchell has FDIC contracts to help manage failed institutions such as Washington Mutual Bank, IndyMac Bank, Downey Savings and Loan, Alliance Bank, 1st Centennial Bank, Community Bank of Nevada, Temecula Valley Bank and Vineyard Bank, according to its Web site.
"Since March of 2008, MMC has received more than three dozen assignments involving the deployment of more than 75 investigations and forensic accounting professionals," Mir Mitchell's Web site says.
Kenneally's lawyer, David Vandevelde, would not say when his client was hired at Mir Mitchell or what job he held. Allen Griffin, a senior principal of Mir Mitchell, which has contracted with the FDIC since 1992, did not return calls seeking comment.
Kenneally worked out of a temporary FDIC office in Irvine, Calif., that was opened to manage receiverships and liquidate assets from failed financial institutions in western states, according to a description in a November 2008 announcement on the agency's Web site.
New Century, a lender based in Irvine, that made "stated income" loans not requiring borrowers to prove how much they earned, filed for bankruptcy protection in April 2007.
Kenneally is a licensed certified public accountant who worked for New Century from 2003 until June 2007, according to the SEC complaint.
As New Century's financial controller from July 2005 to March 2007, Kenneally allegedly altered the company's accounting to hide losses in 2006, enabling New Century to report a $90 million profit in the third quarter of 2006 when it had an $18 million loss, the SEC said in a complaint filed in federal court in California.
"Mr. Kenneally will defend any allegation that he engaged in anything approaching securities fraud," Vandevelde said.
Kenneally never held a "top officer" position at New Century and "always relied" on advice from outside auditors, Vandevelde said. Kenneally was paid $457,000 in his last full year at the company, according to court papers.
He helped draft and review the company's financial reports and served on the disclosure committee, according to the SEC lawsuit. He signed off on communications falsely claiming that accounting changes had been properly disclosed, according to the agency's complaint.
