KPMG US and KPMG International are
facing a $1 billion lawsuit over the audit of subprime mortgage
lender New Century Financial Corporation, which went into
liquidation in August last year.

Complaints filed in a state court in Los
Angeles and a federal court in New York allege audits of New
Century were “grossly negligent” and helped cover up “catastrophic”
problems, including accounting and financial errors, according to
US media reports.

KPMG spokesperson Dan Ginsburg said that while
the firm has not seen the complaint yet, any claim that they bowed
down to client demands is unsupportable.

“As the bankruptcy examiner’s report that was
seeking to identify entities to sue said, KPMG would have
significant defences to any such suit,” Ginsburg said. “KPMG acted
in accordance with professional standards in New Century, and we
will vigorously defend our audit work. Any implication that the
collapse of New Century was related to accounting issues ignores
the reality of the global credit crisis. This was a business
failure not an accounting issue.”

The trial lawyer for the plaintiffs, The New
Century Liquidating Trust and Reorganized New Century Warehouse
Corporation, is Steven Thomas.

Thomas was the lead trial lawyer in the 2007
case where a US jury found BDO Seidman grossly negligent in failing
to detect a fraud that led to the bankruptcy of Miami financial
services provider Bankest and ordered the firm to pay $521 million
in damages. BDO is currently appealing the ruling.