Compliance June 11, 2003

Providian Suit Dismissed; Plaintiffs Can Try Again

November 18, 2002 (PLANSPONSOR.com) - A federal judge has thrown out a 401(k) participant lawsuit against Providian Financial Corp., because the suit's allegations weren't specific enough to let the company know with what it was being charged.

Reported by

Fred Schneyer

US District Judge Charles Breyer of the US District Court for the Northern District of California gave the 401(k) plan participants a month in which to refile their suit alleging that Providian and its officers breached their fiduciary duty by misleading participants about the company’s financial health, Washington-based legal publisher BNA said.

“Here, plaintiffs have lumped the various classes of defendants into an undifferentiated mass and alleged that all of them violated all of the asserted fiduciary duties,” Breyer wrote, according to BNA. “The resulting cause of action is so general that it fails to put the various defendants on notice of the allegations against them.”

The suit against Providian was filed in December 2001, after the collapse of Enron Corp. The lawsuit was one of many filed in reaction to Enron’s bankruptcy and the resulting losses suffered by Enron’s 401(k) plan participants.

A group of Providian employees sued Providian alleging the company’s financial situation caused many 401(k) plan participants to lose almost 95% of their plan account’s value, the BNA reported. According to the lawsuit, Providian matched employees’ contributions to their 401(k) plan accounts with Providian stock.

The lead plaintiff in the case, Ruth Spindler, alleged that in a six month period, the value of her shares lost 95% of their value, dropping from a worth of $3,000 to just over $188.

The lawsuit alleged that although Providian touted itself as a growing company, in reality the company was suffering financially, according to BNA.

When it was disclosed that Providian’s executives had sold millions of dollars worth of Providian stock, the company’s stock plummeted, falling to about $3 per share, according to the lawsuit. The company’s 401(k) plan, whose total value was around $100 million, $41 million of which was invested in Providian stock, suffered significantly, the lawsuit alleged. (See Providian Charged With Fiduciary Breach ).

In re Providian Financial Corp. ERISA Litigation, N.D. Calif., No. C 01-05027 CRB, 11/14/02.