NextCard Reveals SEC Investigation
Failed online credit card issuer NextCard Inc. disclosed Friday that federal securities regulators are investigating the company’s downfall, which could cost a taxpayer-backed insurance fund as much as $400 million.
The San Francisco-based company also said that its chief executive, John Hashman, resigned earlier this week. Hashman oversaw NextCard’s rise and fall as the Internet’s biggest credit card issuer.
After distributing more than 1 million credit cards, NextCard last year sank in a morass of bad loans that prompted banking regulators to seize control of the operations.
The Federal Deposit Insurance Corp. has estimated that the failure of NextCard’s credit card business will result in a loss of $300 million to $400 million.
In a government filing Friday, NextCard didn’t provide any specifics about the Securities and Exchange Commission’s probe. The SEC’s San Francisco office declined to comment.
Federal banking regulators opened investigations into NextCard’s failure seven months ago. In May, the FDIC notified NextCard that it might take legal action against several unnamed company executives and directors.
A shareholder suit filed in Delaware late last year alleges that NextCard insiders illegally sold stock to lock in profit before the company’s credit card portfolio imploded.
Like many other Internet companies, NextCard’s stock once was a hot commodity on Wall Street. The company’s shares peaked at $53.12 in late 1999. The Nasdaq Stock Market delisted the shares six months ago.
Before the company’s shares crashed, NextCard’s five highest-paid executives made $29.2 million by cashing in a combined 1.47 million stock options in 1999 and 2000, according to SEC filings.
Timothy J. Coltrell, formerly NextCard’s chief operating officer, sold 715,499 options for $14.5 million in 1999 and 2000. Hashman pocketed $3.6 million by selling 305,000 stock options in 1999 and 2000.
NextCard helped its executives pay for their tax and stock brokerage expenses by giving them loans at an 8% interest rate, according to SEC records. As of June 2002, the company said, all the insider loans had been repaid except $120,000 owed by Hashman.
The company’s demise led to more than 800 NextCard workers losing their jobs and about 800,000 NextCard customers losing their credit cards after federal regulators could not find a buyer for the accounts.
NextCard continues to run a skeletal operation as its remaining management team contemplates a bankruptcy filing.
