O’Melveny was told by a court-appointed investigator to stop meeting with witnesses it did not represent, according to a report unsealed on Wednesday (26 March).
Bankruptcy court examiner Michael Missal, a partner at Kirkpatrick & Lockhart Preston Gates Ellis, criticised O'Melveny - which represented New Century - for discovery delays in his investigation. Missal also wrote that O'Melveny lawyers met with one former New Century officer "and likely more" before Missal could interview them.
He wrote: "The examiner informed counsel for the company in October 2007 that he did not consider it appropriate for them to give witnesses they did not represent a preview of the examiner's interviews as it could harm the integrity of his investigation." He added that the lawyers said they would not do so in the future.
Missal does not recommend any creditor committee litigation against the law firm, which handled New Century's corporate work as well as its bankruptcy.
Los Angeles-based insolvency partner Ben Logan, who led the O'Melveny team, was unavailable for comment.
New Century’s accountant, KPMG, was also criticised in the 581-page report for suggesting a number of accounting changes that allowed the ailing company to show a profit.
Missal wrote: “At a time when KPMG was aware, as evidenced in its own workpapers, that market conditions were worsening and repurchases were increasing, KPMG made a recommendation to New Century to remove a component of the repurchase reserve that had the effect of decreasing the reserve ... and then failed to inform the Audit Committee of the change to this critical accounting policy."
The examiner also found that more senior KPMG personnel on the New Century account had silenced members of their own staff who tried to raise questions about the accounting changes.
After New Century announced the need to restate earnings, it hired San Francisco Heller Ehrman partner Michael Shepard to conduct an internal investigation – even though Heller had represented KPMG in the past. The accounting giant refused to cooperate with Heller's probe and Shepard quickly wrapped up after the bankruptcy court appointed Missal.
See The American Lawyer: 'New Century bankruptcy a fee bonanza'