KPMG faces $1bn lawsuit for sub-prime auditing

KPMG is being sued for $1bn by creditors of a sub-prime lender for failing to properly audit the collapsed firm.

New Century Financial, which collapsed in April 2007, left banks and investors with huge losses on mortgage-backed securities they bought from the lender.

Two lawsuits have been filed against KPMG, the world's third largest accountancy firm, by a trustee representing its creditors.

A New York court action, filed against KPMG's US operations, accuses auditors of approving "materially misstated" financial reports. The second suit, filed in Los Angeles against KPMG International, says the parent company was reckless and negligent in its managing of its US business.

The trustee says KPMG was flouting laws introduced after the collapse of Enron in 2001, which were designed to increase the independence and oversight of auditors.

"As New Century's Auditor, KPMG failed in its public watchdog duty," the trustee says. KPMG has vowed to fight the claims.

Contact: John Bakie, Tel: 020 7484 9805, e-mail: John.Bakie@incisivemedia.com