Other People’s Money

New Century Financial didn't seek bankruptcy court approval to spend $20 million claimed by bank creditors, an investigator charges.

Bankrupt New Century Financial stands accused of spending $20 million in cash without getting court permission, the Associated Press reports.

A court-ordered investigator found that in the “chaotic and pressured environment” of its bankruptcy collapse, the onetime subprime lender improperly spent money under claim by banks that financed its home-lending operation, according to the report.

“There does not appear to be a basis for New Century to have expended properly such funds,” the investigator, Michael Missal, wrote in a 23-page report filed in November but kept under seal until Thursday, writes the wire service.

New Century, which filed for Chapter 11 last April, defended its postbankruptcy financial dealings in a 59-page reply in which its lawyers asserted the company had solid legal grounds to dispute the banks’ claim to the cash and was acting on that advice. Missal, though, criticized the company for failing to tell him about that legal advice for months.

Indeed, he reportedly accused restructuring advisers heading the company of misleading him into believing they had simply overlooked the fact that millions of dollars in a particular bank account might have been subject to bank claims. Had New Century and its lawyers “been forthright with the court and the examiner from the inception of the investigation,” the probe might have been called off, Missal reportedly said.

Missal also investigated accounting errors by New Century. The two probes cost the company more than $21 million, according to the AP.

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