FDIC Sues Former Officers of NextBank

The U.S. Federal Deposit Insurance Corp. has filed a lawsuit against six former officers and directors of NextBank, an Internet bank that chalked up explosive growth and steep losses before it was seized in 2002.

The FDIC filed the suit Tuesday in U.S. District Court in San Francisco, seeking unspecified damages against the management team based on alleged negligence, unjust enrichment and breach of fiduciary duty, the suit said.

NextBank began operations in September 1999 by issuing credit cards through its website. It quickly grew from $300 million in assets to about $2.2 billion before it was taken over by the FDIC in February 2002 with losses topping $200 million and only $35 million in capital and reserves, according to the lawsuit.

The FDIC said NextBank issued credit cards to unqualified borrowers and failed to set up adequate collections and internal controls for the fast-growing business.

NextBank executives could not be reached for comment.