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Capital One's CFO, Under Probe, Quits

March 04, 2003|From Bloomberg News

Capital One Financial Corp., the fifth-largest U.S. issuer of MasterCard and Visa credit cards, said Monday that its chief financial officer resigned after regulators told him he faced insider-trading charges.

Capital One shares dropped 9%. The Securities and Exchange Commission alleged that David Willey sold $3.2 million in stock two months before Capital One's disclosure last July that regulators ordered it to set aside more money to cover bad loans. That news sent the stock down 40% in a day. Willey's wife, Joy, sold about $1.6 million in shares at the same time.

Willey's resignation underscores the reversals that have vexed Capital One over the last 10 months. Its shares have lost more than 50% since last April amid concerns that its growth had strained its finances. As recently as 2000, Willey won an award for excellence from CFO Magazine.

"Wall Street had lost confidence in the company's management even before this happened," said Chris Baggini, who has sold all the Capital One shares in the Gartmore Growth Fund he manages. "The outlook isn't positive."

Willey was not available for comment, and Chief Executive Richard Fairbank declined to comment.

"We're engaged in a constructive dialogue with the SEC staff," said Willey's lawyer, Richard Morvillo. "If the SEC decides to proceed with the case, we are prepared to take this one the distance and defend Mr. Willey vigorously."

Shares of McLean, Va.-based Capital One slid $2.72 to $28.25 on the New York Stock Exchange on Monday. Its bonds fell as well.

Dave Lawson, CEO of Capital One's $7-billion auto finance subsidiary, was named acting CFO.

Securities laws bar buying or selling securities on the basis of information unavailable to the public. The SEC's probe began after Capital One's stock plunged following disclosure of the regulatory order to increase its bad-loan reserves, the company said. An SEC spokesman declined to comment.

Authorities may bring criminal charges in addition to a civil complaint, experts said.

The allegations against Willey "have the message 'Indict me' written all over them," said Jacob Frenkel, former senior counsel in the enforcement division of the SEC.

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