Screwing Customers and Clients, on Credit
This week, the Advanta Ventures funding unit and BizEquity (a small business valuation service) and IdeaBlob Corp (a small business social media networking site) units of Advanta Corporation filed for bankruptcy protection. Advanta, once one of country’s largest credit card issuers to small businesses, declared bankruptcy earlier this month, while shareholders filed class-action lawsuits claiming the company issued “false and misleading” statements about its financial health and covered-up practices that caused its business to crash.
Advanta was well-known among small business owners for offering low-rate credit cards and then jacking up interest rates, some above 30%. Earlier this year the company stopped issuing new cards and settled with the FDIC over what the regulatory agency said were deceptive and unfair lending practices.
Just this summer, Advanta ran ads in the San Francisco Chronicle promising investors, “You can now earn: 1 year — 11.00 percent.” Retired bank examiner Richard Newsome equated the investment offering with a Ponzi scheme, noting that behind the offer’s rosy high return forecast was the actual investment, in corporate debt from a company on the verge of collapse. Indeed, months before the Chronicle ads ran, Dow Jones Market Watch named the Advanta offering its “stupid investment of the week,” noting the company’s “F” Morningstar rating for financial health and quoting one analyst who warned, “The retail investor always gets played for the sucker with this stuff.”
Now, $138 million in outstanding investments later, Advanta says its remaining $100 million in cash will go to pay “ongoing operations” during the bankruptcy proceedings, not to investors. Advanta shareholders are doing no better: the company stock was trading at a high in 2007 of just over $34, but was delisted this month following the bankruptcy.