The suit, filed in December 2001, alleged that Providian was made aware of numerous practices that made Providian’s stock an inappropriate retirement plan investment from July 17, 2001, but failed to inform the 401(k) retirement plan participants (see Providian Charged with Fiduciary Breach ). Instead, the suit charges, Providian encouraged participants and beneficiaries to continue to make investments in the company’s stock within the defined contribution plan.
About 10,000 Providian employees held company stock in the plan, the plaintiffs said. At one time, employees invested about $170 million in the plan, including $63 million in company stock, according to the complaint.
Management revelations of previously undisclosed loan losses during the second half of that year nearly ruined the firm, which saw its stock price plunge 94% during 2001. Providian specialized in lending to people with bad credit histories – many of which lost their jobs when the economy hit the skids and were unable to make their credit card payments.
Now the San Francisco-based company is trying to recover under a new management team that sold a large chunk of its credit card portfolio and fired thousands of workers. As part of its comeback, Providian has been settling many of the lawsuits spurred by past troubles. The latest settlement with 401(k) plan participants, which includes attorney fees, will be paid by the company’s insurance.
Providian, which said it continues to deny the allegations as “factually untrue and legally without merit,” nonetheless said it wanted to “resolve the action now and focus on continuing to rebuild our company.” Providian said its insurance carrier will make the $8.6 million payment, which includes attorney fees and is subject to court approval.
“We think this settlement is fair and will bring significant value to the participants in Providian’s 401(K) plan,” said Lynn Sarko, managing partner of the Seattle law firm of Keller Rohrback, who represented the plaintiffs with Jane Stranch, of Branstetter, Kilgore, Stranch & Jennings in Nashville.