SEC Sues Former NextCard Executives
Securities regulators on Tuesday sued the management team behind the rapid rise and fall of online credit lender NextCard Inc., alleging the company’s top executives cooked the books and then scrambled to sell their stock before the ruse unraveled into financial ruin.
The civil complaint filed Tuesday by the Securities and Exchange Commission continues the government’s effort to clean up one of the dot-com bust’s biggest debacles.
Banking regulators seized control of NextCard in early 2002, resulting in a failure that inconvenienced customers and saddled the taxpayer-backed Federal Deposit Insurance Corp. with an estimated loss of $253.5 million.
NextCard’s collapse also burned investors who wound up with a virtually worthless stock that once traded above $50 a share.
The SEC’s suit accused five executives, including former NextCard Chairman Jeremy Lent and Chief Executive John Hashman, of engaging in accounting shenanigans to conceal massive losses that began to pile up in late 2000.
The scheme propped up NextCard’s stock, opening a window for both Lent and Hashman to sell their shares at artificially inflated prices, the SEC alleged. The complaint said Lent had implored other NextCard employees not to sell their company stock during late 2000 and 2001.
Hashman expects to be cleared of any wrongdoing, said his San Francisco attorney, John Potter. Lent’s attorney didn’t immediately return phone calls.
Lent, who co-founded NextCard in 1996, made $7 million by selling shares through a family trust from February 2001 to August 2001, the SEC said.
Hashman, who joined NextCard as chief financial officer in 1997 and became CEO three years later, made $321,000 from stock sales completed from May 2001 to July 2001.
The SEC says its investigation found that Hashman had left handwritten notes in November 2000 suggesting the company needed to resort to “accounting gimmickry” for two to three quarters.
Banking regulators forced NextCard to reveal the severity of its loan trouble in October 2001, which led investors to sell, wiping out 84% of the company’s market value in a single day. NextCard went bankrupt 11 months later.