When Torrence James was finished serving a federal prison sentence for dealing cocaine in 2004, he took one of the few white-collar jobs then still available to convicted felons.

He became a mortgage broker.

Last week, Chief U.S. District Judge Edward W. Nottingham sentenced James to 12 years in prison for mortgage fraud. James, 44, of Centennial, was part of a ring that fleeced several mortgage companies out of $3.7 million by taking out fraudulent loans.

Many of the luxury properties that James and six other defendants skimmed became party pads as they fell into foreclosure, devastating local property values.

Crime and punishment. Law and order. Justice served.

But how does a convicted dope peddler become a mortgage broker and get instant access to millions of dollars in the first place?

One of the companies James and his crew defrauded was New Century Financial Corp. of Irvine, Calif., which is now under federal investigation for fraud itself.

It’s the same old story. New Century is in bankruptcy after paying its executives millions in bonuses and stock options.

Its three founders made more than $40 million selling stock between 2004 and 2006 as the company apparently made loans to anyone with a pulse.

When the company is liquidated, its shareholders will receive a penny to 25 cents on the dollar.

New Century had a “brazen obsession” with making subprime loans, turning “a blind eye” to a “ticking time bomb,” according to an independent report released last week that was commissioned by the Justice Department.

New Century wrote $357 million worth of mortgages in 1995, the year it was founded. In 2006 it wrote $60 billion. How did it grow so fast? Liar loans.

Lending standards were so lax that all some borrowers had to do was fill out a form stating incomes that would never be verified. It was just this easy.

New Century, like every mortgage lender, did not have an incentive to think about loan quality.

The loans would usually become somebody else’s problem once they were sold.

But how does a publicly traded company get away with such fiscal slop?

Doesn’t it have an auditor?

The 580-page report from examiner Michael Missal, which was more than five months in the making, concludes that New Century’s auditor, KPMG, failed to exercise due care in reviewing the books, leading to misstated financial results.

KPMG has said it “strongly disagrees” with the report’s findings.

“It’s an Arthur Andersen re-do,” said Lynn Turner, the former chief accountant for the U.S. Securities and Exchange Commission, who now sits on the U.S. Treasury’s committee on the auditing profession. “We’re right back where we were in pre-Enron days.”

Remember all those Arthur Andersen guys who lost their jobs after Enron blew? Well, many of them found new jobs at KPMG.

Not that KPMG needed their help screwing up the books.

As KPMG responded to the New Century report last week, it also announced that the firm would pay $80 million to settle up for accounting restatements at Xerox Corp. that occurred in 2000.

The firm denied wrongdoing, saying it settled to avoid litigation costs and distraction.

Here’s 80 million bucks. Forgetaboutit. It was a long time ago.

What can anybody say?

“Some things blow up occasionally,” said John Bazley, a professor at the University of Denver’s Daniels College of Business. “People make mistakes.”

In the case of New Century, KPMG may have had to constantly re-value complex securities stuffed into Byzantine portfolios, Bazley explained.

The financial instruments that giant investment banks create these days are so convoluted nobody understands them. Often it’s difficult to calculate all the risks and see who is taking them — which explains why one day an 85-year-old firm like Bear Stearns looks OK and the next it needs a $30 billion bailout from the Federal Reserve, just to be liquidated.

“It’s a Wall Street issue more than an accountants’ issue,” said Bazley.

And a very complicated one at that. Meantime, it’s a good thing they got that Torrence James guy. What a menace to society he was.

Al Lewis’ column appears Sundays, Tuesdays and Fridays. Respond to him at blogs.denverpost.com/lewis, 303-954-1967 or alewis@ denverpost.com.