The bankrupt subprime lender New Century Financial, which failed last April in one of the first big signs that this mess was beginning to unravel, used “significant improper and imprudent practices”, according to investigators. Sounds like Enron: the investigators say said practices were condoned by its accountants KPMG, something KPMG of course denies. But the e-mails look like they will do them in—again.

E-mail messages uncovered in the investigation showed that some KPMG auditors raised red flags about the accounting practices at New Century, but that the KPMG partners overseeing the audits rejected those concerns because they feared losing a client.

Ruh roh, Shaggy.

New Century changed the way it accounted for loan losses, allowing it to report a profit when it actually lost money in the last six months of 2006. This subprime thing started long before the consensus believes it did.

The investigation was led by Michael J. Missal, a lawyer and former investigator in the enforcement division of the Securities and Exchange Commission…

Mr. Missal, who also worked on an investigation of WorldCom’s accounting misstatements, concluded that KPMG and some former New Century executives could be legally liable for millions of dollars in damages because of their conduct…

Our Smoking Gun Quote of the Day:

“I saw e-mails from the engaged partner saying we are at the risk of being replaced,” Mr. Missal said in a telephone interview about a KPMG partner working on the audit of New Century. “They acquiesced overly to the client, which in the post-Enron era seems mind-boggling.”

Speaking of Enron…

Citigroup finally settled over its role in helping the E lie to investors, the NYT says on C3. Citi will fork over $1.66 billion it can ill afford at the moment to the Enron Bankruptcy Estate, though it’s long had reserves set aside for the possibility of such a payout.

The WSJ says on C4 that:

“It represents a huge step toward the final settlement of litigation Enron brought against 11 banks, accusing them of conspiring with former Enron officials to manipulate the energy company’s finances. Enron says the banks helped set up structured finance transactions with Enron that buried the company in debt, forcing it into bankruptcy.”

The NYT says Citi has “so far” paid out more than $4 billion for its role in the Enron debacle, but still has another $1.5 billion in claims against it from a “group of several other big banks that has accused Citigroup of being deceitful about Enron’s finances in its role as principal agent for the group.”

The FT reports more bad Citi news. On-the-money analyst Meredith Whitney says the bank may have to take another $11 billion in write-downs this quarter and it faces lawsuits over its underwriting of mortgage-backed securities.

Citizen Meriwether

The WSJ reports on C1 that a founder of the infamous Long Term Capital Management, the hedge fund that nearly brought global financial markets to their knees a decade ago, is against getting his butt handed to him.

John Meriwether’s biggest fund is down 28 percent so far this year (the average hedge fund is down 3.4 percent) after trailing markets last year, and investors are trying to bail out.

Mr. Meriwether and his colleagues at JWM Partners LLC—which he launched in 1999 with LTCM alumni—are trying to reassure investors in the two funds that they have slashed risk and will use their experience to survive this market crisis, preserving about $1.4 billion in assets.

The struggles represent a warning signal to investors that the perils of the current crisis aren’t over despite lower market values and government efforts to calm the financial system.

This guy just can’t keep away from bad press:

One of Wall Street’s best-known traders, Mr. Meriwether was featured prominently in the book “Liar’s Poker,” which depicted the antics of Salomon’s bond traders. His LTCM hedge fund, located in Greenwich, Conn., included Nobel Prize winners and math whizzes, but it was undone in 1998 by massive “leverage,” or borrowing—up to $50 for every dollar invested—which amplified losses when the markets turned on him.

Mr. Meriwether’s recent troubles partly stem from borrowing. His bond fund had $14.90 in borrowed money for every $1 in equity at the end of February, according to the March 18 letter. Although far lower than at LTCM, the fund’s risk level, which includes leverage, was still too much for this year’s volatile environment, he and his fund managers have acknowledged in conversations with investors.

How do we invest our money with this guy?

Icahn wants more

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.