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Examiner Raps O’Melveny, Firm Apologizes for Discovery ‘Mishap’

Posted Jan 23, 2008 7:46 AM CDT
By Debra Cassens Weiss

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O'Melveny & Myers says a discovery “mishap” is to blame for 700,000-plus missing e-mails in the bankruptcy of subprime lender New Century Financial Corp.

The law firm apologized for the error even as it faced additional criticism from a bankruptcy examiner who said the law firm had not been forthright about its advice regarding funds that may belong to creditors, the Recorder reports.

In a report unsealed on Thursday, bankruptcy examiner Michael Missal said he had to spend $800,000 to sort out conflicting statements about the bank’s handling of cash collateral that may belong to another party.

Missal said he originally concluded the bank had not handled the collateral properly, based on representations from the lawyers that they had not analyzed the matter. After Missal made his determination, New Century disclosed it had received O’Melveny legal advice that guided its cash collateral strategy, the story says.

O'Melveny lawyers said they did not provide false information to the examiner "nor did they ever intentionally or even negligently mislead him." They said the examiner’s investigation was based on a “fundamentally incorrect understanding" of the bank's legal position.

The firm apologized for the discovery problems, saying in a Jan. 14 filing that an outside vendor was to blame. "The debtors recognize that such errors, even if unavoidable in the context of such a process, cause inconvenience to participants in proceedings of this nature, and accept full responsibility," the law firm wrote.

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