Dive Brief:

• Former Discover executive Diane Offereins filed a lawsuit against the card network company Wednesday, alleging $7 million in stock awards was clawed back because she was deemed a “convenient scapegoat” for the company’s card misclassification issue that’s attracted the attention of regulators.
• In the lawsuit filed in the U.S. District Court for the Northern District of Illinois, Offereins, 66, has charged Discover with breach of contract and gender and age discrimination, contending that she was the only woman and the only retired Discover executive committee member to lose equity as a result of the company’s internal investigation into the matter.
• Riverwoods, Illinois-based Discover declined to comment. A spokesperson for Capital One, which aims to acquire Discover for $35.3 billion, didn’t immediately respond to a request for comment.

Dive Insight:

Offereins spent nearly 25 years at Discover, serving as global chief information officer for about 11 years and president of payment services for close to 14 years, according to her LinkedIn profile. She retired in June 2023.

The following month, Discover publicly disclosed the card pricing error, which affected merchants and merchant acquirers. Beginning in 2007, the company mistakenly put certain credit card accounts into its highest merchant and merchant acquirer price tier, resulting in overcharges. 

The issue “underscored deficiencies” in the company’s corporate governance and risk management, former Discover CEO Roger Hochschild said in July 2023, just weeks before he resigned abruptly. Last October, the company said the Securities and Exchange Commission was investigating the issue.

Offereins’ complaint noted an internal investigation into the issue, led by outside counsel, was “long-running,” delving into potential misclassification of some non-commercial credit cards into a commercial tier which charged merchants higher interchange fees on transactions. 

The issue was “well-known” within all divisions of the company, including by the CEO and board members, the complaint alleges. It “related to a practice that began before Ms. Offereins was put in charge of running Discover’s payments network and one that the Company had been actively discussing since at least 2017,” the complaint said. 

Senior managers in the company’s risk, legal and finance departments were aware of the issue for years, and “proposals to fix the card misclassification issue were routinely presented to the most senior leaders of the Company over the course of the 2010s,” the complaint said. Offereins was involved in discussions to “rebalance” the card classification portfolio as early as 2010, the complaint noted.

Dubbed “Project Simple,” the internal review into the matter began in the first quarter of 2023. Offereins cooperated with the internal investigation and was interviewed in July by outside counsel days after her retirement began, the complaint said. Neither Discover nor counsel had follow-up questions for Offereins, according to the complaint.

But Discover canceled Offereins’ unvested stock awards in January “under the guise of ‘misconduct,’” pointing to findings from the internal investigation, the complaint alleges. Offereins was found to have engaged in “willful or reckless violation of the Company's risk policies,” a risk review found, but Discover provided no evidence or explanation to back that up, the complaint said. 

No one at the company had suggested to Offereins that she was suspected of misconduct in connection with the review; she had “repeatedly raised concerns about the classification issues” and advocated for change, the complaint contended.

Offereins lost more equity as a percentage of her total received equity than any others, including Hochschild and Dan Capozzi, the current president of consumer banking at Discover, the complaint said. Capozzi, previously president of U.S. cards, was the executive in charge of the unit at Discover responsible for the card misclassification for the last four years, the complaint alleges.

As a recently retired senior executive who had large tranches of unvested equity “due right at the moment that Discover felt it needed to make a show to its regulators of withholding earned equity compensation,” Offereins was an easy scapegoat, the complaint asserted. Her shares are now valued at about $8 million. 

In February, Capital One said it intended to buy Discover in a $35.3 billion all-stock deal. The proposed merger awaits regulatory approvals. Capital One has said it’s bracing for a significant undertaking in resolving Discover’s compliance issues. In July, Discover said it would settle class-action lawsuits related to the card misclassification issue for $1.2 billion. 

“The only apparent explanation for Discover’s decision to cancel her hard-earned equity on the night before it was set to vest is the company’s desperate attempt to make the only woman and only retired Discover executive committee member a convenient scapegoat amid a blockbuster merger deal,” Sean Hecker, a partner at Hecker Fink and Offereins’ attorney, said in a statement Wednesday.