The subprime lending industry was starting to buckle under the weight of bad loans in November 2006, when executives at Irvine-based New Century Financial Corp. held a conference call to release their latest earnings.

Loan volume was down and defaults were up, the earnings report showed, and in recent weeks at least five stock analysts had downgraded the company’s shares. Moreover, four executives had sold nearly $20 million in stock in the last four months, six times as much as they had sold over the previous 12 months. The company said then the sales were allowed the officers’ personal financial diversification plan.

New Century eventually collapsed into bankruptcy in early 2007 after a short-lived reign as the nation’s biggest subprime lender. Now those executive stock sales have emerged as a central element in the Justice Department’s criminal investigation of New Century, a person familiar with the inquiry told the Los Angeles Times.

No charges have been filed, and attorneys for the company’s former top executives say that none of the executives sold stock based on information that had not been disclosed to the public and that the executives retained most of their shares when the company went under.

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