FirstCity Won?t Change Financials After Investigation

FirstCity Financial Corp. (NASDAQ: FCFC) reported late Friday that it would not make any material adjustments to its financial statements after completing two internal investigations, and that it would “promptly” file two regulatory reports that had threatened the listing of its stock.

The Waco, Texas-based debt buyer and seller had delayed filing its 2006 annual report and first quarter 2007 quarterly report with the Nasdaq stock market as FirstCity completed its investigation of a portfolio sale, and activity at a Latin American affiliate.

The conclusion of the investigations means FirstCity will “file very shortly and that will get us in compliance,” a spokesperson for the company tells insideARM.

FirstCity stock was up nearly 2.9 percent in midday trading today to $10.33.

FirstCity reported that an independent investigation by its Audit Committee found that a loan portfolio was sold for the “best price available at the time” and that no FirstCity officer, manager or full time employee benefited from the sale. The sale was initiated by other investors in the portfolio that owned a majority stake in the loans, the investigation concluded.

In a second investigation, the Audit Committee found that it couldn’t complete its review into charges against an officer at a First City affiliate because it couldn’t gain access to certain documents “outside FirstCity’s custody and control.” The allegations concerned the officer’s activity before joining the affiliate, FirstCity reported.

The Audit Committee concluded that there should be no adjustment to its financial statements but recommended that there be better “assurances of accurate financial reporting” particularly from its Latin American operations, and that the company improve its internal control structure and compliance practices. FirstCity reported that it has begun to implement these recommendations but provided no details. The spokesperson declined to comment saying that further information on the investigations may be made available when it releases its annual and quarterly reports.

FirstCity reported in March it would delay filing its 2006 annual report as it investigated whether it received inadequate compensation in the sale of a portfolio, and looked into allegations made about an officer at an affiliate company. FirstCity later announced it would delay filing its first quarter 2007 report. The NASDAQ market threatened to delist FirstCity’s shares from trading because of its failure to file.

FirstCity has offices in Mexico, Brazil, Chile and Argentina along with France and Germany.