'Corporate SWAT Team' Head Tainted?

The leader of President Bush's new task force on corporate crime was a director of a credit card company that paid more than $400 million to settle charges of consumer and securities fraud, according to The Washington Post.

The company, Providian Financial Corp., is also the subject of a class-action suit by its employees, alleging Enron-like actions.

The task force head, Deputy Attorney General Larry Thompson, served on Providian's board and was chairman of its audit and compliance committee from June 1997 until he was confirmed by the Senate in May 2001, according to Securities and Exchange Commission documents obtained by the Post.

Mr. Bush established the white-collar crime task force Tuesday amid mounting corporate scandals. He gave Thompson until July 19 to convene its first meeting. But in a surprise move, the president held the first session on Friday at the White House.

At the meeting, Thompson pledged to go after corporate criminals "with vigor and an aggressive manner."

Thompson sold all his stock in Providian, worth nearly $5 million, after his confirmation to comply with ethics rules. The sale came a few months before Providian began to disclose looming problems with defaults in its credit card portfolio, problems that led to a collapse of its stock price and the layoffs of thousands of employees, the Post reports.

Providian was one of the biggest credit card companies in the "subprime market," which targets people with low incomes and bad credit histories.

The company ran into financial trouble last year after settling charges that it inflated its financial results by charging excessive fees and engaging in other practices that state and federal regulators said ran afoul of consumer-protection rules, the Post says.

Thompson did not return calls to the Post for comment. "The deputy attorney general is proud of his service on the board of Providian. He only became aware of the [fraud] issues when regulators began to make inquiries," his spokesman, Mark Corallo, told the Post.

"He then personally took the lead in making the company do the right thing and it was his personal efforts that were a driving force in the company settling over $400 million and in implementing internal reforms and compliance measures," Corallo said.

Corallo staunchly defended Thompson when contacted by CBS News. Thompson's "experience as a white collar prosecutor, as U.S. attorney, and now as deputy attorney general, have proven him to be an absolutely professional and dedicated prosecutor," he said.

"Larry Thompson's integrity and professionalism are above reproach," he went on.

Thompson's service on the Providian board coincided with the time regulators said Providian engaged in fraudulent conduct. Providian settled all the complaints without admitting or denying wrongdoing, according to the Post.

Thompson, a former U.S. attorney in Georgia and partner and defense lawyer at the Atlanta law firm King & Spalding, was not questioned about his role at Providian during his confirmation hearing.

San Francisco-based Providian's growth relied on pursuing customers with poor credit histories, who typically have difficulty obtaining credit. State and federal complaints that the company has settled alleged that Providian denied its cardholders a customary grace period for loan payments and misled them into accepting higher interest rates and hidden charges, the Post reports.

Providian agreed to a $300 million settlement in June 2000 with the Office of the Comptroller of the Currency, a federal banking regulator, and the San Francisco district attorney's office after being accused of misleading marketing practices.

The settlement is "by far" the largest ever reached by the bank regulator, a spokesman for the comptroller's office is quoted by the Post as saying.
Six months after the Comptroller of the Currency settlement, the company paid $105 million to settle the same allegation in a class-action suit filed on behalf of its customers, the Post says.

In March 2002, Providian paid $38 million to settle a class-action suit brought by shareholders in 1999 alleging that the company's unfair marketing strategies resulted in inflated financial results that belied the true health of the company, the Post adds. A number of lawsuits were filed against Providian late last year after it posted disappointing third-quarter earnings.

In addition to the consumer-related legal actions, Providian officers and directors, including Thompson, are defendants in a current class action suit brought by more than 10,000 Providian employees who allege that while directors and executives employed oversight accounting practices and sold their own company stock holdings, they continued to recommend large holdings of company stock in 401(k) retirement plans, the Post reports.

A lawyer for the plaintiffs, Lynn Lincoln Sarko of Keller Rohrback in Seattle, told the Post that the lawsuit is in its early stages and that Thompson and others could be dropped as defendants.

During the second quarter of 2001, Providian began writing off bad loans monthly rather than immediately, as it had done previously. As a result, Providian was able to delay recognition of $30 million in loan losses to the third quarter.

A Providian spokeswoman said the employee suit "holds no merit" and refused further comment on pending litigation, according to the Post.