he Securities and Exchange Commission (SEC) filed suit on Sept. 28, 2004 against the management team behind credit card issuer NextCard, Inc. The complaint alleges the top executives cooked the company books and sold their stock holdings before the company collapsed in 2002.

The SEC accuses five executives, including former Chairman Jeremy Lent and Chief Executive Officer John Hashman, of illegal stock sales and illegal accounting practices they helped instigate to cover huge losses that began with the dot-com bubble burst in 2000.

The scheme helped to inflate the value of NextCard's stock, which created opportunities for the executives to sell their shares at artificially high prices. The SEC suit also claims that Lent asked company employees to hold off on selling their own stock to prevent a rapid decline in its value.

Regulators want NextCard's former executives to return all profits from the sale of the stock; the executives also face fines.

The Green Sheet reported that NextCard's five top executives made $29.2 million by selling a combined 1.47 million stock options during 1999 and 2000 ("More Bad News from NextCard," Sept. 23, 2002, issue 02:09:02).

Former Chief Operating Officer Timothy J. Coltrell collected $14.5 million when he sold 715,499 options in 1999 and 2000, and Hashman made $3.6 million by selling 305,000 shares during the same period.

The Office of the Comptroller of the Currency shut down NextCard's operations in February 2002. At that time, the Federal Deposit Insurance Corp. (FDIC) estimated that the failure of NextCard's credit card business and the ensuing investigation would cost taxpayers as much as $400 million.

Launched in 1997, NextCard was an online issuer of credit cards that aggressively marketed its Visa card to a large number of applicants on the Internet.

In 2002, federal regulators deactivated 800,000 accounts belonging to former cardholders, straining the coffers of the FDIC, which had no luck selling the accounts; customers could not use the cards and were responsible for repaying balances.

More than 800 NextCard employees lost their jobs with the company's disintegration.