Qureshey Named in NextCard Suits
By RAJIV VYAS
Safi Qureshey has seen his investment in San Francisco-based NextCard Inc. go from bad to worse.
Qureshey, who sits on NextCard’s board, has been named in lawsuits against the company and its directors. While shareholder suits are expected in such cases, they add insult to injury for the venture capitalist.
Qureshey, a co-founder of AST Research Inc. who now runs venture capital firm Irvine Ventures, has seen a likely decline of more than 90% in his original investment in NextCard, a once high-flying issuer of credit cards via the Internet. Qureshey provided seed funding for NextCard and has been a director since 1997. In recent months, Qureshey has sold shares as NextCard’s stock has dropped.
In October, federal regulators slapped curbs on NextCard’s lending and the company said it was putting itself up for sale. Some shareholders are charging the company with fraud for how it accounted for losses. Last week, NextCard shares were trading at around 73 cents, down from a high of near 50 in 1999.
At least 15 lawsuits have been filed against NextCard. Narendra Patel is one shareholder who has filed a class action suit against the company and its directors. Patel blames NextCard directors for alleged mismanagement and accuses them of withholding information. Patel is represented by New York-based Wolf Haldenstein Adler Freeman & Herz LLP.
“Defendant Safi Qureshey was a director of NextCard at all relevant times,” Patel said in his suit. “During the class-action period, Qureshey was in possession of confidential adverse information concerning NextCard. Qureshey took advantage of his false statements and omissions and artificial inflation they caused.”
Qureshey declined to comment for this story.
In the past six months or so, Qureshey and his venture fund, Skyline Ventures Inc., have sold close to 270,000 NextCard shares. Just in September, Qureshey and Skyline sold 103,000 shares.
Kale Goodman also has filed suit against NextCard. Qureshey isn’t named as a defendant in the suit, though his stock sales are mentioned in the complaint.
“For some reason we didn’t name him (Qureshey),” said Jeffrey Block, a partner at Boston-based Berman, DeValerio Pease Tabacco Burt & Pucillo, which is representing Goodman. “I can’t remember why we didn’t name him. But going back and reviewing it, I am sure that we probably would name him.”
Directors who are sued for mismanagement have defenses, according to Charles Ruck, an attorney at Costa Mesa-based Latham & Watkins.
“They can say, ‘Hey I didn’t do it,'” Ruck said. “Even if they did it, you have to sue the company first. After that they have insurance coverage (against lawsuits).”
The NextCard suits still are in the early stages. They likely will be consolidated into one suit. If the case follows the normal course, NextCard likely will ask the judge to dismiss the case on the basis of prejudice or a lack of sufficient evidence.
Almost a third of the cases are thrown out by the judge because they are weak or lack sufficient evidence. A majority of the remaining cases are settled before they go to trial.
