Grant Thornton LLP resigned Monday as the auditor for Fremont General Corp., an FDIC-insured lender ordered by federal regulators to stop subprime lending, and San Diego-based Accredited Home Lenders Holding Co.
The auditor cited "significant events" at Fremont as the reason behind a recent decision by Thornton to expand the scope of its financial audit of the lender's internal documents, and said that Fremont had failed to provide the information needed to complete its review.
According to a filing with the Securities and Exchange Commission, Fremont officials disputed Grant Thornton's version of events, saying "at no time" did the company fail to provide information requested by its auditor.
Regardless, the resignation of Grant Thornton brings additional -- and probably unwanted -- attention to a lender that has already been the subject of significant attention by Federal regulators.
"Whether true or not, it just looks like Fremont had something to hide," said one source, who asked not to be named. "Auditors don't usually resign when they're on the clock to complete a review, doubly so given the somewhat dubious circumstances at Fremont."
Grant Thornton also delivered a notice of resignation to San Diego-based Accredited Home Lenders Holding Co., although it did not provide any susbtantial reason for its decision to quit as auditor.
Accredited noted in a filing with the Securities and Exchange Commission Monday that the auditor had also sought to "significantly expand" the scope of its audit of Accredited's financial records, something it did not get to do before delivering its resignation. The auditor had recently expressed a "going concern" opinion about the lender.
Very few industry sources interviewed for this story were willing to comment on the record regarding possible reasons for the auditor's exit, but one source noted that widespread industry accounting practices for loan valuations might have been in the auditor's cross-hairs as part of an "expanded" audit.
"There is plenty of grey area in terms of loan valuation, pricing and so forth, and very little of financial reporting is regulated heavily in this area -- or investigated heavily, for that matter," said the source, on strict condition of anonymity.
The source said many in the industry "know how to massage and maximize a loan's saleable value," but whether or not such practices violated any accounting rules is something the source said she could not comment on.
Both Fremont and Accredited said they will begin a search immediately for a new independent auditor, a process which will further delay each company's 2006 regulatory filings with the SEC.