The man President Bush tapped to lead his corporate crime watchdog team was a director of a San Francisco credit-card firm that just two years ago paid more than $400 million to settle charges that it cheated consumers.

Larry Thompson, named to lead the Bush administration's white-collar crime task force, served on the board of directors of Providian Financial Corp. at the same time regulators found that the firm systematically charged excessive fees and used deceptive sales tactics to bolster its bottom line.

Deputy Attorney General Larry Thompson, joined at left by Securities and Exchange Commission Chairman Harvey Pitt, speaks with reporters outside the White House West Wing, following the first meeting with President Bush of the corporate fraud task force, Friday, July 12, 2002. Thompson, the head of Bush's new corporate-crime task force, served as a director at a credit-card company that paid more than $400 million to settle allegations of unfair and deceptive business practices officials said on July 13. (AP Photo/J. Scott Applewhite)

Thompson sat on Providian's board and served as chairman of the firm's audit and compliance committee from June 1997 until his unanimous confirmation by the Senate as deputy attorney general on May 10, 2001.

He sold his Providian stock -- said to be worth as much as $4.7 million -- to comply with ethics rules. The sale came just months before the firm disclosed looming problems with credit card defaults that led to the collapse of its stock and thousands of layoffs.

The revelations could be a potential embarrassment for Bush, who on Tuesday announced the creation of a white-collar crime task force to crack down on the type of corporate chicanery that has undermined public confidence in the stock market.

Bush had given Thompson until July 19 to convene the first meeting of the task force, but, in a surprise move, Thompson held the first session Friday at the White House. During the meeting, Thompson pledged to pursue corporate criminals "with vigor and an aggressive manner."

Thompson could not be reached for comment. A Justice Department spokesman, Mark Corallo, said Thompson knew nothing about the fraud and led the charge to clean house after Providian -- without admitting wrongdoing -- agreed to settle the matter in June 2000. Thompson was not questioned about the case during his confirmation hearing for the Justice Department appointment.

"He only became aware of the (fraud) issues when regulators began to make inquiries," Corallo told the Washington 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."

Thompson's stock options in the company were vested on an accelerated basis so he could cash them in before he joined the Justice Department.

He held 89,651 shares, including unexercised options, on March 12, 2001, according to Providian's March 2001 proxy statement. When he took office on May 10, 2001, that stock had a market value of more than $4.7 million.

Insider trading is an issue in stockholder and employee lawsuits that accuse Providian officials of concealing financial problems while former CEO Shailesh Mehta and two other executives dumped shares. The alleged wrongdoing took place after Thompson left the board.

Providian's stock price began to slide after a Sept. 4, 2001, announcement that its third-quarter earnings would be lower than expected. The stock, which reached a 52-week high of $59.85 in July, 2001, eventually hit a low of $2 a share in November. It closed at $4.65 on Friday.

The company, once the nation's sixth-largest issuer of credit cards, agreed in June, 2000 to pay more than $300 million to settle charges that it fooled customers into buying products they didn't want.

The settlement, by far the largest ever negotiated by federal bank regulators, closed a one-year investigation by the San Francisco district attorney, California attorney general and the federal office of comptroller of the currency.

Six months later, the company paid an additional $105 million to settle the same allegations in a class-action suit filed on behalf of its customers.

Last March, Providian agreed to pay $38 million to settle a class-action lawsuit filed by shareholders alleging that the company inflated its profits through its price-gouging practices.

In the California probe, investigators found what District Attorney Terence Hallinan called "a web of deceptive and misleading business practices."

One area covered in the settlement was a Providian program that guaranteed big, though undisclosed, savings to customers who transferred balances from other card issuers, but only lowered interest rates by three-tenths of a percentage point or less.

Another area involves sales of fee-based products, such as credit protection, in which customers who thought they were only requesting information were charged for purchases.

In documents obtained by The Chronicle earlier this year, Providian founder Andrew Kahr wrote that, in lending to the kinds of high-risk customers Providian specialized in, the "problem is to squeeze out enough revenue and get customers to sit still for the squeeze."

In a March 1999 memorandum to Executive Vice President David Alvarez, he wrote: "Making people pay for access to credit is a lucrative business wherever it is practiced. . . . Is any bit of food too small to grab when you're starving and when there is nothing else in sight? The trick is charging a lot, repeatedly, for small doses of incremental credit."

The Washington Post contributed to this story.

©2002 San Francisco Chronicle

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