Gloves off in the nasty Metris-Zebeck fight

May 02, 2004|By JAY HANCOCK

THE NASTY fight between credit-card issuer Metris Cos. and its founder and former boss, Ronald N. Zebeck, is getting nastier.

The Office of the Comptroller of the Currency subpoenaed Metris a few weeks ago for documents relating to "executive compensation and reimbursement," the company disclosed in government filings. But, Metris hastened to mention, "we do not believe that the OCC's investigation concerns any of the activities of our current executives."

Hmm, which former executive could be the subject of documents Metris is dishing to law enforcement?

Could it be a former CEO who once made $50 million in a year, the son of a Baltimore steelworker whom Metris fired in late 2002 and who's suing and being sued by Metris over his severance?

Of course it could. Metris, based in Minnesota and employing 447 in White Marsh, isn't saying more about the latest document dragnet. But it has publicly accused Zebeck of billing the company for personal limousine rides and other unauthorized luxuries. Now it seems to have called the cops.

There might be a scandal here, but so far the evidence is piddling. This looks more like Metris trying to pressure Zebeck into a settlement by painting him to look like Tyco's L. Dennis Kozlowski - he of the $15,000 umbrella stand.

In a lawsuit filed in January, Metris alleged Zebeck charged the company for "residential equipment," travel and meals "not reasonably related to business" and "excessive dues and related costs for club memberships" in addition to the limos.

That's the best they've got? Running up big country-club bills is a job description for American CEOs. Through his lawyer, Zebeck denies company claims, calling them "false and defamatory" in a legal filing.

"That was all stuff that was approved," attorney Lewis A. Remele Jr. said of the perks in an interview. "There was never any discussion like that or reasons like that when he was terminated."

In another, seemingly gratuitous swipe, Metris says Zebeck's computers bore evidence of visits to porn and gambling Web sites "on repeated occasions from multiple office and residential locations."

Remele denies wrongdoing by Zebeck, and he told local papers that Metris processed credit card claims for adult sites, which could have left traces on company hard drives.

Zebeck is the other credit card tycoon with Baltimore roots. Like Charlie Cawley, who was forced out of Delaware-based MBNA Corp. last year, Zebeck was weaned on Baltimore plastic before blowing town and making it very big elsewhere.

He graduated from Towson University and worked at what was then a Maryland Citicorp unit before moving to Advanta outside Philadelphia and then in 1991 to General Motors, where he launched the car company's no-fee card program.

He started another card operation for Minnesota catalog merchant Fingerhut in 1994 and stayed on when it was spun off as Metris Cos. a few years later.

Zebeck is by many accounts blunt, diligent and obsessed with consumer credit. Called "the Bull of Baltimore" by the Minneapolis Star Tribune, he made Metris the 10th-biggest card issuer and earned $50 million in 2000, mostly from stock-option exercises.

But Metris fired Zebeck in late 2002 after poor financial results. He had aimed the card largely at people with middling or low credit scores, and after the recession hit, those folks started defaulting in droves.

In a lawsuit filed last year, Zebeck claims he was canned at the behest of directors representing a Boston buyout group, Thomas H. Lee Co., which had a big position in Metris and which Zebeck says was seeking to sell the company against interests of common shareholders.

A spokesman for Thomas H. Lee says the firm takes "great care to fully and completely exercise our fiduciary responsibilities to all shareholders."

In any event, Zebeck says he was wrongly fired and wants compensation for severance as well as for what he says is Metris' defamation. There are big dollars involved: Metris has an outstanding loan of $5 million to Zebeck, which he says should be forgiven, and he claims additional pay under a "change of control" contract.

Zebeck was not a good long-term CEO for Metris. Its stock on his watch went from $10 to $40 to $2. Now it's $7 - a sign of a recovering economy. There were accounting problems on Zebeck's watch, apparently minor but under investigation by the Securities and Exchange Commission. And his pay was deeply flawed: He was able to cash out stock options near Metris' peak in 2000.

But Metris' accusations against him seem to be less of a federal case and more of a legal tactic.

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