Advanta Corp. has been hit with two lawsuits from dissatisfied shareholders.
Caught in a swirl of takeover rumors, the Spring House, Pa.-based card issuer has also been fending off litigation now compounded by the class actions by shareholders. They follow Advanta's recent settlement of a complaint brought by Visa U.S.A.
The latest litigants claim Advanta's senior management intentionally misled investors about the deteriorating quality of its credit card portfolio. The company has been reeling from a $19.8 million loss in the first quarter.
The suits-filed in U.S. District Court for the Eastern District of Pennsylvania on June 30 and July 8-also accuse management of inflating stock prices and engaging in insider trading.
Some credit card experts characterized the filings as opportunism on the part of mercenary law firms.
"The management of that company, both past and present, has a lot of integrity and it is hard to believe these allegations are true," said Anita Boomstein, a partner at the New York law firm of Hughes Hubbard & Reed.
Ms. Boomstein sees "lawyers trying to cash in on" a bad quarter, which happens cyclically in the credit card business.
Advanta has sustained a series of blows, beginning several quarters ago when it reported an above-average chargeoff rate. But the company does not believe the shareholder suits will amount to anything.
"Our lawyers have reviewed the complaints and they have advised us they are frivolous and without merit," said Darcy Rudnay, an Advanta spokeswoman. "Advanta has always been meticulously careful in abiding by all legal requirements and we will vigorously defend the matter."
Jay A. Dubow, a partner at Wolf, Block, Schorr & Solis-Cohen, the Philadelphia law firm defending Advanta, called the cases "standard litigation" stemming "from a stock price drop."
The same firm represented Advanta against Visa, which had claimed Advanta illegally linked the bank card brand name to a cardholder rewards program offered by archrival American Express Co.
Advanta countersued and called the card associations' membership requirements anti-competitive. But in its out-of-court settlement, Advanta agreed to cancel the card offering.
In the two new cases, the plaintiffs claim to represent shareholders who bought Advanta stock between Oct. 17, 1996, and March 17, 1997.
The record shows that shortly before announcing the bad news about the first quarter, Advanta executives sold 890,000 shares, worth more than $39 million.
Word of the loss, along with Advanta's announcement it had retained BT Wolfensohn & Co., an investment bank specializing in mergers and acquisitions, sent the stock price down 21% in a day.
While Advanta said there was nothing amiss, the shareholders and their lawyers accuse management of acting illegally.
Marc A. Topaz, an attorney from Schiffrin & Craig, Bala Cynwyd, Pa., one of four law firms representing shareholders, said there was "substantial insider trading" and Advanta executives sold stock "at a time they knew there were problems."
He said shareholders suffered "substantial damages" and Schiffrin & Craig is "looking to recover money" for them.
The other firms representing shareholders are Milberg, Weiss, Bershad, Hynes & Lerach of New York; Bernard M. Gross of Philadelphia; and Stull, Stull & Brody of New York. All are known for class-action tactics.
Like other industry observers, Mark C. Alpert, managing director of Alex. Brown & Sons, downplayed the significance of the suits.
"It is unlikely to affect my fundamental view" of Advanta, he said. "I suppose some investors could view this as an obstacle of some size for the potential sale of the company," but he said he thought it was unlikely.
On June 18, Advanta's shares rose 7%, to $34.62, on speculation that a takeover was imminent. National Australia Bank Ltd., First Chicago NBD Corp., Associates First Capital Corp., BankAmerica Corp., and General Electric Co. were rumored to be in the hunt.
It advanced $1.125 Friday to $34.625.