Five former executives of a failed dotcom company NextCard, including two former finance executives, have agreed to pay a total of about $1.4 million to settle civil charges that they engaged in alleged financial reporting fraud to conceal the deteriorating health of the company.
According to the Securities and Exchange Commission, by late 2000, losses and delinquencies were higher than expected at NextCard, which sold credit cards over the Internet and went public in 1999. The complaint alleges that to conceal the information from investors, the five individuals “resorted to a series of undisclosed accounting adjustments that artificially lowered NextCard’s reported credit losses and delinquencies” for fiscal 2000 and the first two quarters of 2001, and misled investors about the health of the company’s credit card loan portfolio. NextCard declared bankruptcy in 2002.
The monetary settlements represent proceeds from the sales of NextCard stock by the five former executives, penalties, and prejudgment interest. The individuals include Chief Financial Officer Bruce Rigione, Controller Douglas Wachtel, Chief Executive Officer John Hashman, President and Chief Operating Officer Yinzi Cai, and Chairman and Chief Strategy Officer Jeremy Lent.
Rigione was ordered to pay a penalty of $50,000 and has been barred from serving as an officer or director of any public company for five years. Wachtel was ordered to pay stock sales proceeds, penalties, and prejudgment interest of $93,223. He was also barred from serving as an officer or director of any public company for five years. In addition, Wachtel consented to the entry of an order in a separate SEC administrative proceeding suspending him from appearing or practicing as an accountant before the Commission for five years.
In early 2005, Thomas Trauger, a former partner of Ernst & Young was sentenced under the expanded powers of the Sarbanes-Oxley Act for changing and destroying documents in a bid to block an SEC probe into the collapse of NextCard. Trauger received a year in prison, two years of supervised release, and a $5,000 fine.