James F

James F. Marshall, Esq. (SBN 126030)

Civil Litigation Director

JUDICIAL WATCH, INC.

2540 Huntington Drive, Suite 201

San Marino, CA 91108-2601

Telephone: (626) 287-4540

Facsimile: (626) 237-2003

Attorneys for Plaintiff

Robert Lake

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

ROBERT LAKE,

Plaintiff,

PROVIDIAN FINANCIAL CORPORATION;

SHAILESH J. MEHTA;

DAVID R. ALVAREZ;

JAMES H. ROWE;

J. DAVID GRISSOM;

LARRY D. THOMPSON;

and DOES 1-10, inclusive,

Defendants. ______________________________________

Civ. No.

COMPLAINT FOR DAMAGES;

DEMAND FOR JURY TRIAL

NATURE OF THE ACTION

1. This action arises from a securities fraud perpetrated by current and former directors and officers of Providian Financial Corporation (“Providian”) against shareholders of and potential investors in Providian securities and the integrity of the securities market.

JURISDICTION

2. Jurisdiction exists under 28 U.S.C. § 1332 because the parties are of diverse citizenship and the amount in controversy (including punitive and exemplary damages), plus statutory attorneys’ fees, exceeds $75,000.00, exclusive of interest and costs. On information and belief, punitive and exemplary damages are highly likely to be awarded in amounts over $75,000.00 due to the egregiousness of the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth in detail below, and attorneys’ fees are likely to reach or exceed that amount.

VENUE

3. Venue is proper in this District under 28 U.S.C. § 1391(a)(2) because a substantial part of the events or omissions giving rise to the claims occurred in this District.

INTRADISTRICT ASSIGNMENT

4. The County of San Francisco is where (a) Providian’s principal place of business is located and (b) a substantial part of the events or omissions giving rise to this action occurred.

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PLAINTIFF

5. Plaintiff Robert Lake (“Lake”) is a citizen of and domiciled in the State of Texas and at relevant times bought and held Providian securities. Due to the egregiously unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below, Lake seeks and expects to recover compensatory damages and over $75,000.00 in punitive and exemplary damages.

THE CORPORATE DEFENDANT

6. On information and belief, Providian is a Delaware corporation with its principal place of business at 201 Mission Street, 28th Floor, San Francisco, California 94105.

DIRECTOR AND OFFICER DEFENDANTS

7. On information and belief, at all relevant times Defendant Shailesh J. Mehta (“Mehta”) was and is a citizen of and domiciled in California, a resident of San Francisco County, and at relevant times the President, the Chief Executive Officer, the Chairman of the Board, or a member of the board of directors of Providian. In these capacities, on information and belief, at all relevant times Mehta knew all about the matters set forth below. Mehta is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

8. On information and belief, at all relevant times Defendant David R. Alvarez (“Alvarez”) was and is a citizen of and domiciled in California, a resident of San Francisco County, the President for Credit Cards, the President for Integrated Card Business, or the Vice-Chairman of the Board of Providian. In these capacities, on information and belief, at all relevant times Alvarez knew all about the matters set forth below. Alvarez is sued herein as a

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direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

9. On information and belief, at all relevant times Defendant James H. Rowe (“Rowe”) was and is a citizen of and domiciled in California, a resident of San Francisco County, and an Executive Vice-President, the Chief Financial Officer, or the Principal Financial Officer of Providian. In these capacities, on information and belief, at all relevant times Rowe knew all about the matters set forth below. Rowe is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

10. On information and belief, at all relevant times Defendant J. David Grissom (“Grissom”) was and is a citizen of and domiciled in Kentucky and at all relevant times a member of the board of directors and a member of the Audit and Compliance Committee of Providian. In these capacities, on information and belief, at all relevant times Grissom knew all about the matters set forth below. Grissom is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

11. On information and belief, at all relevant times Defendant Larry D. Thompson (“Thompson”) was and is a citizen of and domiciled in the District of Columbia or Georgia. At relevant times he was a member of the board of directors of Providian and the chairman of the Providian Audit and Compliance Committee. Thompson is currently the Deputy Attorney General of the United States, is in that capacity the second-highest ranking officer in the United States Department of Justice, and is paradoxically the head of the Corporate Crime Task Force, which was created to combat the very kind of corporate and securities fraud that he and other Defendants committed, as set forth below. Thompson is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth in detail below. On information and belief, Thompson’s involvement in the acts, omissions, and schemes set forth below started when he was a Providian director and the chairman of the Audit and Compliance Committee and continued after his confirmation as Deputy Attorney General and his appointment to head the Corporate Crime Task Force.

12. Defendants Mehta, Alvarez, Rowe, Grissom, and Thompson are collectively called the “Director and Officer Defendants” below.

13. On information and belief, starting on a date currently unknown before May 10, 2001, Providian began to suffer a slowdown in revenues and cash generation and an increase in losses due to customer bankruptcies and charge-offs. On information and belief, the Director and Officer Defendants were extremely concerned about the expectations of the financial analysts that covered Providian, and the culture within Providian and among the Director and Officer Defendants was such that meeting or exceeding such analyst expectations was one of Providian’s highest priorities. On information and belief, intense pressure to meet or exceed such analyst expectations was exerted by the Director and Officer Defendants. On information and belief, the Director and Officer Defendants were especially concerned that if Providian did not meet or exceed expectations, its stock price would fall and the Director and Officer Defendants’ personal holdings of Providian stock, stock options, related rights, or other forms of executive compensation would be devalued or reduced. On information and belief, Thompson was especially concerned that the stock and stock options that he had accumulated over the course of his years as a Providian director would be devalued or reduced. Based in part on the pressures caused by these concerns, the Officer and Director defendants embarked on a scheme to artificially inflate and enhance the price of Providian stock by misrepresenting and concealing Providian’s performance and financial condition.

14. On information and belief, on dates currently unknown before May 10, 2001, as a result inter alia of the foregoing corporate culture of Providian and the pressures on and self-interests of the Director and Officer Defendants, the Director and Officer Defendants secretly entered into an agreement, combination, and conspiracy with each other and the other defendants to commit, aid, abet, participate in, conceal, and further the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below, with intent to mislead Providian shareholders, potential investors, and the securities market as to Providian’s true financial condition, for the purpose of artificially inflating the market price of Providian’s stock and enriching themselves, and for the further purpose of engendering Thompson’s good will and securing favors, favorable treatment, and protection from him through his high office in the Federal government.

DOE DEFENDANTS

15. On information and belief, Defendant Does 1 through 10 are past or present affiliates, control persons, directors, officers, managing agents, or other agents or employees of Providian, whose names are currently unknown, but who knowingly committed, aided and abetted, participated in, substantially assisted, furthered, or concealed unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below. On information and belief, no Doe Defendant is a citizen of or domiciled in the State of Texas. Plaintiff will seek leave to identify the Doe Defendants by their exact names and capacities when that information is ascertained.

FACTUAL ALLEGATIONS COMMON TO ALL CLAIMS

16. Providian is a consumer lending company offering a variety of loan products, including credit cards, revolving lines of credit, secured credit cards, and fee-based products.

17. Commencing on or about August 17, 1998, and continuing to the present, on multiple occasions Plaintiff purchased Providian stock through his 401(k) plan, reinvested dividends in regular additional purchases of Providian stock, participated in a stock split, and held Providian stock. As of July 31, 2002, Plaintiff owned 132.9 shares of Providian stock. On information and belief, during 2001 when Defendants were reaping the spoils of their illegal and fraudulent acts described more fully below, Providian stock was trading as high as $60 per share. As a result of the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below, Plaintiff was fraudulently deprived of the opportunity to sell his Providian stock for a profit and has lost almost all the value of his investments in Providian stock.

18. On information and belief, on or about August 9, 2000, Providian adopted a formal written charter for its Audit and Compliance Committee (the “Charter”). On information and belief, at relevant times Thompson was the Chairman, and at all relevant times Grissom was a member, of the Audit and Compliance Committee. On information and belief, the Charter stated that the Audit and Compliance Committee had responsibilities inter alia to “[r]eview the annual audited financial statements ...; review communications from the independent auditor and management regarding major issues relating to accounting and auditing principles and practices; and review changes in accounting principles ... which have a significant impact on the financial statements.” On information and belief, the Director and Officer Defendants participated in the formulation and adoption of the Charter, knew what it required of Providian, the Director and Officer Defendants, and other committee members, and followed the Charter at all relevant times, as a result of which they were at all relevant times aware of the facts set forth below.

19. On information and belief, on or about March 7, 2001, the Providian Audit and Compliance Committee issued a report stating that the Committee fulfilled its responsibilities to discuss the company’s financial condition, its audited financial statements for the fiscal year ended December 31, 2000, and related matters, with the company’s independent auditors, Ernst & Young LLP (the “3/7/01 Report”). On information and belief, at the time of these discussions Thompson was Chairman and Grissom was a member of the Audit and Compliance Committee. On information and belief, Thompson and Grissom conferred with the other Director and Officer Directors, Mehta, Alvarez, and Rowe, about the financial condition of Providian on or before March 7, 2001, prior to issuing the 3/7/01 Report. On information and belief, as a result of the foregoing discussions and conference, information and documents available within Providian, and their positions within Providian, at all relevant times the Director and Officer Defendants knew that (a) customer bankruptcy rates were increasing and likely to continue increasing in the future, (b) customer delinquencies were increasing and likely to continue increasing in the future, and (c) credit loss rates were increasing and likely to continue increasing in the future.

20. On information and belief, at all times when Providian projected what its financial results would be in second quarter 2001 (“Q2") and third quarter 2001 (“Q3"), the Director and Officer Defendants knew that such projections could not be achieved due to increasing customer bankruptcy rates, increasing customer delinquencies, and increasing credit loss rates.

20. On information and belief, before May 10, 2001, Providian’s financial condition was deteriorating rapidly due to a substantial decrease in revenues and a substantial increase in losses caused by customer bankruptcies and charge-offs. On information and belief, as a result of (a) internal monitoring, reporting, and projections, (b) conversations with management of its servicing facilities and other employees, and (c) their key positions in the company, Defendants knew before May 10, 2001, that projected Q2 and Q3 results would not be achieved.

21. On information and belief, before May 10, 2001, using insider information that Providian’s financial condition was rapidly deteriorating, the Officer and Director Defendants adopted a fraudulent scheme involving the misrepresentation and concealment of Providian’s financial condition to inflate artificially the price of Providian stock, so that the Officer and Director Defendants could exercise their stock options and sell their Providian stock at inflated prices to unsuspecting buyers before Providian’s true financial condition would be exposed.

22. On information and belief, the scheme that Defendants adopted involved the manipulation of the manner in which Providian was to recognize losses resulting from the rising tide of customer bankruptcies. On information and belief, Providian had long followed the standard industry practice of daily recognition of such bankruptcy-related losses as charge-offs upon notification of each customer bankruptcy. However, on information and belief, on or about June 18, 2001, pursuant to the agreement, combination, and conspiracy formed among the Director and Officer Defendants prior to and continuing after May 10, 2001, Providian changed its handling of customer bankruptcy filings and resulting charge-offs from daily processing to batch processing, as a result of which two weeks’ worth of bankruptcy filings and charge-offs would be accumulated prior to recognition (the “Accounting Change”). On information and belief, the Accounting Change was not immediately disclosed to existing shareholders, potential investors, the United States Securities and Exchange Commission (“SEC”), or the public.

23. On information and belief, the Director and Officer Defendants adopted the Accounting Change with the intent secretly (a) to move two weeks of losses caused by the increasing customer bankruptcies and charge-offs from Q2 into Q3, (b) to inflate Providian stock prices artificially, and (c) to give themselves an extended window of opportunity to exploit insider information about the true, deteriorating financial condition of Providian to exercise their stock options and sell their stock holdings at artificially inflated prices to unsuspecting investors.

24. On information and belief, although the Director and Officer Defendants entered into their agreement, combination, and conspiracy to defraud before May 10, 2001, they delayed implementation of the Accounting Change until the end of June 2001 because a two-week delay of charge-offs for earlier periods in Q2 would have been included in Q2, would have had no net effect on Q2 results, and would have increased the risk of discovery or exposure of their fraud.

25. On information and belief, at all relevant times Defendants knew that customer bankruptcies and charge-offs had been rising in past quarters and was approaching the threshold of 10%, which was a matter of concern or alarm to Providian analysts, the Director and Officer Defendants, and more sophisticated shareholders. On information and belief, at all relevant

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times the Director and Officer Defendants understood that creating an appearance of achieving projected Q2 and Q3 results required fraudulent, downward manipulation of charge-off rates.

26. On information and belief, by implementing the Accounting Change, Defendants were successful in lowering Providian’s reported charge-off rates and caused Providian’s Q2 earnings per share (“EPS”) to be overstated by at least $0.06, which was a material amount under all the circumstances, and the disclosure of which would have revealed the company’s deteriorating financial condition and the likelihood of further deterioration in Q3 and beyond.

27. On information and belief, the Director and Officer Defendants knew and intended that the Accounting Change would result in the material overstatement of projected EPS for Q2 and Q3. However, on information and belief, the Director and Officer Defendants considered the appearance of future EPS growth critical to their plan to inflate the price of Providian shares, so they repeatedly misrepresented and concealed, in furtherance of their agreement, combination, and conspiracy to defraud, that Providian would post Q2 EPS of at least $0.79 and Q3 EPS of $0.83, all the while know that Providian had no reasonable basis for projecting such results.

28. On or about March 30, 2001, Providian filed a Form 10-K for the fiscal year ended December 31, 2000 (the “2000 10-K”), with the SEC. The 2000 10-K stated, in part, that “The delinquency rate on our consumer loans and the rate at which our consumer loans are charged off as uncollectible (referred to as the credit loss rate) have increased recently and may continue to increase, depending on a number of factors, including ... (iii) an increase in the number of customers seeking protection under the bankruptcy laws.” The 2000 10-K stated that customer delinquencies and credit loss rates were substantially likely to increase in the future. The 2000 10-K was signed by Mehta, Grissom, Thompson, and other directors as of March 30, 2001.

30. On or about March 30, 2001, Providian also filed a Form Schedule 14A Definitive Proxy Statement in connection with the Annual Meeting of Shareholders to be held on May 9, 2001 (the “2001 14A”). The 2001 14A identified Thompson as Chair and Grissom as a member of the Audit and Compliance Committee and stated, in part, that this committee “reviews the annual audited and quarterly unaudited financial statements of the Company ... [and] reviews internal audit and compliance plans and reports, legal matters that may have a material impact on the financial statements, and the Company’s risk management and internal controls.”

31. On information and belief, by no later than March 30, 2001, the Director and Officer Defendants had all discussed the foregoing financial information and likely future developments set forth in the 2000 10-K with each other and had all received and reviewed documentation of said matters. On information and belief, as a result of the foregoing events and their positions with Providian, the Director and Officer Defendants knew at all relevant times that (a) customer bankruptcy rates were increasing and likely to continue increasing in the future, (b) customer delinquencies were increasing and likely to continue increasing in the future, and (c) credit loss rates were increasing and likely to continue increasing in the future.

29. On information and belief, on or about May 9, 2001, Providian held its Annual Meeting of Shareholders, during which Defendants, acting in agreement, combination, and conspiracy with each other, distributed written information or made oral representations about the financial performance of the company in 2000, its then-current financial condition, or its financial prospects for 2001 (including inter alia projected EPS for Q2 and Q3). The foregoing statements by and on behalf of Defendants were materially incomplete, misleading, fraudulent, false, or deceptive when made, and were known by Defendants to be such when made, because Defendants knowingly failed to disclose the Accounting Change that they had already adopted and that they intended to implement at the end of Q2 in order artificially to enhance Providian’s financial results and to inflate its stock prices. At all relevant times the Director or Officers Defendants hid the Accounting Change and their unfair, unlawful, and fraudulent scheme.

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30. On information and belief, the United States Senate confirmed the appointment of Thompson to the position of Deputy Attorney General on or about May 10, 2001, whereupon he resigned his position as a Providian director. On information and belief, notwithstanding his foregoing confirmation and resignation, Thompson continued to act in agreement, combination, and conspiracy with the other Director and Officer Defendants by continuing to conceal the true financial condition of Providian while participating in the common scheme to commit unlawful insider trading transactions on the basis of material adverse nonpublic financial information.

31. On or about May 14, 2001, Providian filed its Form 10-Q Quarterly Report for the quarterly period ended March 31, 2001, with the SEC (the “5/14/01 10-Q”). The 5/14/01 10-Q was signed by Rowe in his capacity as Executive Vice-President, Chief Financial Officer, and Principal Financial Officer. On information and belief, all Director and Officer Defendants had participated in the review, preparation, and approval of the 5/15/01 10-Q and unaudited financial statements therein, were familiar with the contents thereof, and knew that those documents were materially incomplete, misleading, fraudulent, false, or deceptive because they failed to disclose the Accounting Change, which had already been adopted and was to be implemented at the end of Q2 in order artificially to enhance Providian’s financial results, to inflate its stock prices, and to facilitate illegal insider trading transactions by the Director and Officer Defendants.

32. On information and belief, the Director and Officer Defendants who were still with Providian, acting in furtherance of their agreement, combination, and conspiracy with each other, caused Providian executives to hold investor meetings and tours of servicing facilities in Pleasanton, California, on or about June 5 and June 6, 2001. On information and belief, in a formal presentation and break-out sessions at the servicing facilities, the Providian executives told the assembled analysts, money and portfolio managers, and institutional investors that: (a) Providian would easily achieve Q2 EPS of $0.79 and Q3 EPS of $0.83; (b) charge-offs would decline and hit 10%; (c) the quality of Providian’s portfolio was improving; and (d) Providian

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was then experiencing lower delinquency rates. On information and belief, the Director and Officer Defendants knew these statements were false when made but did not correct them.

33. On information and belief, acting through Mehta and Rowe in furtherance of their agreement, combination, and conspiracy, the Director and Officer Defendants caused Michael Freudenstein of J.P. Morgan to issue a J.P. Morgan report on Providian on or about July 6, 2001. This report was issued after Mr. Freudenstein had extensive discussions with Mehta and Rowe, and forecast Q2 EPS of $0.79. Based on misrepresentation made by Mehta and Rowe on behalf of the Director and Officer Defendants, this report also misstated that Providian’s net charge-off rate for Q2 was only10%, and that Providian “charges off bankrupt accounts upon notification.” On information and belief, Mehta and Rowe, on behalf of the other Director and Officer Defendants, made these misrepresentations with the intent of causing them to be repeated and widely disseminated through Mr. Freudenstein, J.P. Morgan, and their report on Providian. On information and belief, the Director and Officer Defendants knew these statements were false when made but did not correct them.

34. On information and belief, on or about July 19, 2001, after releasing its Q2 results (which the Accounting Change had fraudulently enhanced), Providian held a conference call for analysts, money and portfolio managers, institutional investors, and large Providian shareholders to discuss Providian’s Q2 results, business, and future prospects. On information and belief, the Director and Officer Directors caused Providian to announce Q2 EPS of $0.79. On information and belief, acting through Mehta and Rowe, the Director and Officer Defendants stated during this conference call, and in follow-up conversations with analysts, that (a) Providian’s loss ratio was 10.29% and would decline in Q3; (b) Providian would report Q3 EPS of $0.83; and (c) the process that Providian followed for charging off bankrupt accounts remained unchanged. On information and belief, the Director and Officer Defendants knew these statements were false when made but did not correct them.

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Providian Financial Corporation ... today announced 24% net income growth resulting in a 23% earnings per share growth for the second quarter of 2001. Earnings totaled $232.4 million, or $0.79 per diluted share, compared to earnings of $187.6 million, or $0.64 per diluted share, for the second quarter of 2000, before one-time adjustments. During the second quarter, total customer accounts grew to 17.7 million, a 27% increase over the end of the second quarter of 2000, driven by new account originations and continued strong customer retention. Total managed credit card loans increased by $2.1 billion during the quarter to $30.5 billion, a 39% increase over the end of the second quarter of 2000. “We are pleased with our continued growth and strengthening of our consumer franchise, which enables us to deliver consistent returns to our shareholders,” said Shailesh Mehta, chairman and chief executive officer.... Total managed revenue, comprised of managed net interest income and non-interest income, climbed to $1.76 billion in the second quarter of 2001, a 29% increase over the second quarter of 2000, before one-time adjustments. In the second quarter, managed net interest income was $962.2 million and managed non-interest income was $802.4 million, an increase of 40% and 18%, respectively, over the second quarter of 2000, before one-time adjustments. The managed net interest margin on loans rose to 13.13% in the second quarter of 2001 from 12.77% in the first quarter of 2001. Consistent with the Company’s expectations for the seasoning of the portfolio and the rise in year-to-date consumer bankruptcies, the managed net credit loss rate in the second quarter was 10.29% versus 9.34% in the first quarter of 2001. The 30+ day managed delinquency rate was 8.04% at quarter end, a slight increase from 7.64% at the end of the first quarter of 2001. Based on the trend in the 90+ day delinquency rate the Company continues to expect an improved credit loss rate in the third quarter 2001. The Company’s loan loss reserves totaled $1.53 billion at the end of the second quarter, representing 10.55% of reported loans. The Company’s non-interest expense for the second quarter was $621.6 million, leading to an improvement in the efficiency ratio to 35% for the quarter from 37% in the second quarter of 2000, before one-time adjustments, despite absorbing higher collection costs. The efficiency ratio improvement was driven in part by continued cost savings from the integration of the Company’s credit card platforms. The Company’s return on managed assets was 2.71% and return on equity was 40.08% for the second quarter. The Company ended the quarter with a strong balance sheet, with capital and loan loss reserves totaling $4.1 billion, which represented 19.5% of reported assets and 11.3% of managed assets at quarter end. “Our financial results for the quarter demonstrate the strength of our adaptive business model. Despite the more challenging economic environment, we continue to deliver strong top-line growth and industry leading returns on assets and equity,” said David Petrini, vice chairman. “As we look out to the balance of the year, we are well positioned to continue to produce solid returns while maintaining our leadership position in customer satisfaction.”

36. On information and belief, in furtherance of their agreement, combination, and conspiracy with each other, the Director and Officer Defendants who were still with Providian caused Bruce Harting of Lehman Brothers to issue a Lehman Brothers report on Providian on or about July 20, 2001. On information and belief, this report was based on and repeated the financial information provided in the July 19, 2001 conference call and follow-up conversations. The Lehman Brothers report stated, inter alia, that:

Despite reporting a chargeoff rate above 10% in Q2, the credit performance of the company’s portfolio is generally in line with expectations, reflecting recent growth and normal seasoning. Higher than initially expected bankruptcy filings (and related chargeoffs) and some variance in portfolio growth accounted for the loss rate being 10%. Providian receives electronic notification of bankruptcy filings and charges off those accounts almost immediately after receiving notification. July bankruptcy trends have been more favorable than during the second quarter which should have a positive impact on losses if this trend continues throughout the third quarter. Higher 30 day delinquencies at the end of the second quarter are the basis for the expected fourth quarter increase in the chargeoff rate. The drop in the 90 day delinquencies in Q2 makes management confident about predicting a decline in loss rates in Q3.

On information and belief, the Director and Officer Defendants knew these statements were false when made but did not correct them.

37. On information and belief, prior to July 23, 2001, Defendants knew that Providian would not have EPS growth in Q3. On information and belief, this would be the first time ever as a public company that Providian would report a declining sequential quarter in EPS growth. On information and belief, Defendants knew that the inability to show continuing growth would devastate Providian’s share price and their ability to profit from their stock options and shares. On information and belief, using material nonpublic financial information, the Director and

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Officer Defendants exploited the artificially inflated stock prices to exercise options and engage in a huge selling spree to reap tens of millions of dollars in illegal insider trading profits.

38. On or about August 14, 2001, Providian filed its SEC Form 10-Q for the quarterly period ended June 30, 2001 (the “8/14/01 10-Q”). The 8/14/01 10-Q was signed by Rowe in his capacity as Executive Vice-President, Chief Financial Officer, and Principal Financial Officer. The 8/14/01 10-Q falsely reported Q2 EPS of $0.79 as a result of Accounting Change, which the Director and Officer Defendants were continuing to conceal. On information and belief, Mehta, Alvarez, and Grissom, in furtherance of their agreement, combination, and conspiracy with each other, Rowe, and Thompson, (a) had participated in the review, preparation, and approval of the 8/14/01 10-Q and the unaudited financial statements therein, (b) were familiar with the contents thereof, and (c) knew that those documents were materially incomplete, misleading, fraudulent, false, or deceptive due to the continuing concealment of the Accounting Change and its effects.

39. On information and belief, on or about September 4, 2001, after repeated calls to Providian’s corporate offices about rumors involving the company’s financial results, Providian issued a press release entitled, “Providian Financial Revises Earnings Guidance,” in which the following statements, inter alia, were made:

Providian Financial Corporation today announced that it is revising its 2001 earnings guidance to $3.20 to $3.25 per diluted share, representing a 17% to 19% increase over 2000 earnings per share before one-time adjustments. In revising its guidance, the Company cited a recent slowdown in customer purchase activity, softer loan demand relative to expectations, and ongoing credit tightening by the Company. In light of these factors, the Company is planning for lower managed loan growth in the range of 29% to 31% for 2001. In the third quarter, the Company expects to report earnings per diluted share of $0.82 to $0.84 and an improvement in its managed net credit loss rate to below the second quarter rate of 10.29. At the currently expected loan growth levels, it is likely that the fourth quarter managed net credit loss rate will be between 10.45% and 10.75%. The Company’s anticipated loan growth and mix will likely result in the managed net credit loss rate for 2002 remaining at or above the fourth quarter 2001 level. The Company plans to add $50 to $75 million to its loan loss reserve during the balance of 2001. “Providian remains highly profitable with solid returns on assets and equity and a very strong balance sheet,” said Shailesh J. Mehta, chairman and chief executive officer. “Even though we expect to maintain industry leading profitability per account, based on our growing scale and our objective of optimizing the balance between risk and growth, we believe 15% earnings per share growth is an appropriate long-term goal. While it is too early to have a refined view of 2002, it is expected that earnings per share performance will be lower than our long-term goal.”

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The Company also commented on the change made to the process for recognizing charge-offs resulting from consumer bankruptcies. For improved operational efficiency, the Company now batches electronic bankruptcy notifications and charges off the related amounts once per month. The change resulted in a portion of bankruptcies, for which notification was received on or after June 18, 2001, being charged off in July. Because the Company’s loan loss reserves provided for estimated bankruptcies received but not yet charged-off, the change had no impact on second quarter earnings. For the quarter ended June 30, 2001, adjusting for the processing change, the managed net credit loss rate of 10.29% and the managed 30+ day delinquency rate of 8.04% were 10.63% and 7.99%, respectively.

40. On information and belief, after the September 4, 2001 press release admitting the change in recognition of bankruptcy losses, analysts, money and portfolio managers, institutional investors, and large shareholders dumped Providian shares and expressed their outrage over the hidden change and subsequent insider trading, repeatedly questioning “management credibility.” On information and belief, on or about September 7, 2001, Director and Officer Defendants who were still with Providian met with representatives of Deutsche Banc Alex. Brown (including Mark Alpert) at Providian’s San Francisco headquarters, where they admitted that they should have been open and honest about the Accounting Change. However, on information and belief, acting in furtherance of their continuing agreement, combination, and conspiracy with each other and Thompson, they continued to maintain, and represented during this meeting, that Providian would still achieve Q3 EPS of $0.83, knowing that such results would not be achieved.

41. On or about October 11, 2001, after the close of the market, Providian announced preliminary third quarter results. The press release of October 12, 2001, stated in part that:

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Providian Financial Corporation today reported it expects third quarter earnings to be lower than previous guidance of $0.82 to $0.84 per diluted share. The Company cited three primary factors: actions to strengthen the balance sheet in anticipation of continued weak credit conditions, lower than expected fee and finance charge revenue in September, and higher than expected credit losses in September. Actions to strengthen the balance sheet include an incremental loan loss provision of approximately $186 million and a charge of approximately $85 million to recognize the estimated uncollectible portion of accrued finance charges, and to increase the estimate of uncollectible fees, on accounts which are 90+ days delinquent. Previously, these finance charges and fees were reversed against current revenue upon charge-off of the related account. The results also include a $23 million gain from the early extinguishment of debt. Based on preliminary numbers, the Company now expects earnings to be in the range of $0.19 to $0.21 per diluted share. The managed net credit loss rate is expected to be approximately 10.33% for the quarter. The Company will announce its third quarter results and revised guidance for the fourth quarter on October 18th after the close of the market. Until that release, the Company does not plan to provide further updates.

42. The foregoing statements and representations between June 6 and October 11, 2001, were materially incomplete, misleading, false, fraudulent, or deceptive when made. The true, concealed facts were: (a) the reported Q2 charge-off rate of 10.29 % was materially understated because the true rate was 10.7%; (b) it was practically impossible for charge-offs to decline in Q3 because 12 days of charge-offs were secretly pushed into Q3 and the customer bankruptcy rate was increasing; (c) asset quality was eroding and required Providian to increase reserves, but the company did not do so, thereby inflating Q2 and Q3 results; (d) the reported Q2 EPS was false because the Accounting Change moved about $30 million of charge-offs from Q2 into Q3, which manipulated charge-off rates and artificially inflated Q2 EPS by at least $0.06; and (e) as a consequence of (a)-(d) above, Providian had no realistic prospect of achieving Q2 EPS of $0.79 or Q3 EPS of $0.83. On information and belief, the Director and Officer knew and until October 11, 2001, concealed the truth that the foregoing statements and representations were materially incomplete, misleading, false, fraudulent, or deceptive when made.

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43. On information and belief, by adopting and implementing the Accounting Change and engaging in the foregoing misrepresentations and concealment, Providian and the Director and Officer Defendants violated generally accepted accounting principles (“GAAP”) in the following particulars:

(1) The principle that interim financial reporting should be based upon the same accounting principles and practices used to prepare annual financial statements was violated (APB No. 28, ¶10);

(2) The principle that financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions was violated (FASB Statement of Concepts No. 1, ¶34);

(3) The principle that financial reporting should provide information about the economic resources of an enterprise, claims to those resources, and effects of transactions, events, and circumstances that change resources and claims to those resources was violated (FASB Statement of Concepts No. 1, ¶40);

(4) The principle that financial reporting should provide information about how management of an enterprise has discharged its stewardship responsibility to owners (stockholders) for the use of enterprise resources entrusted to it was violated. To the extent that management offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to prospective investors and to the public in general (FASB Statement of Concepts No. 1, ¶50);

(5) The principle that financial reporting should provide information about an enterprise’s financial performance during a period was violated. Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors’ expectations about future enterprise performance, those expectations are commonly based at least partly on evaluations of past enterprise performance (FASB Statement of Concepts No. 1, ¶42);

(6) The principle that financial reporting should be reliable in that it represents what it purports to represent was violated. That information should be reliable as well as relevant is a notion that is central to accounting (FASB Statement of Concepts No. 2, ¶¶58-59);

(7) The principle of completeness, which means that nothing is left out of the information that may be necessary to insure that it validly represents underlying events and conditions was violated (FASB Statement of Concepts No. 2, ¶79);

(8)