A former Discover Financial Services senior executive is suing the Riverwoods-based company for gender and age discrimination, alleging that it withheld more than $7 million in earned equity awards and made her a “scapegoat” in an ongoing credit card misclassification investigation.
The lawsuit, filed Wednesday in Chicago federal court, comes as Capital One seeks regulatory approval for its proposed $35 billion acquisition of Discover in a merger of credit card giants.
Diane Offereins, 66, of Highland Park, retired in June 2023 after 25 years as chief information officer at Discover, where she headed up the payment services business. The network used for processing credit card transactions is both at the center of Capital One’s acquisition plans and under investigation by federal regulators.
Upon retirement, Offereins was feted with accolades by then-CEO Roger Hochschild, who praised her in a news release as leaving a “lasting legacy” at Discover. The company even created a new achievement award in her honor, according to the lawsuit.
Six months later, Discover canceled Offereins’ stock awards — days before they were scheduled to vest — alleging “misconduct” over the credit card misclassification issue, and making her the only senior executive singled out for monetary damages, according to the lawsuit.
“Despite not being responsible for the issues identified in the investigation, Ms. Offereins lost her unvested equity because she was a convenient scapegoat for the card misclassification issue,” the lawsuit alleges.” She was the only woman and the only retired Discover executive committee member to lose equity as a result of the investigation.”
Discover did not immediately respond to a request for comment on the lawsuit.
In July 2023, Discover disclosed it was under a Securities and Exchange Commission investigation for a long-running credit card misclassification that charged some merchants higher processing fees for accounts incorrectly categorized as commercial.
Hochschild, who started as an executive at Discover in 1998 — the same year as Offereins — abruptly resigned as CEO in August 2023 amid the compliance issues, with no apparent hit to his own stock awards, which totaled $10.6 million in 2022 alone, according to financial filings.
Offereins “fully cooperated” with an internal investigation into the matter, undergoing a three-hour interview with independent counsel days after her retirement. That was the last she heard about the investigation until the company canceled her equity awards six months later, claiming the investigation determined misconduct by Offereins, according to the lawsuit.
The allegations and the stock award clawbacks came as an unwelcome surprise to Offereins.
“No one at Discover ever suggested to Ms. Offereins that she was even suspected of misconduct in connection with the investigation,” according to the lawsuit. “Nor could they have. She was not responsible for the classification of cards; she had repeatedly raised concerns about the classification issues; and she had advocated for ways to change it.”
Offereins was recruited to become chief information officer at Discover in 1998 by then-President and COO David Nelms, with whom she had previously worked at MBNA. In 2008, she helped integrate the acquisition of Diners Club, and the following year was tabbed to helm Discover’s global payments network.
She intended to leave Discover in 2018 when Nelms retired as CEO and was replaced by Hochschild, but agreed to stay on to support the transition. Then the pandemic hit, extending her time at Discover for another three years, according to the lawsuit.
When she finally retired in June 2023, she was lauded by the company. But in January, Discover exercised clawback provisions in its compensation plan to cancel $7 million in unvested stock awards due Offereins over alleged misconduct discovered during the company’s internal investigation, according to the lawsuit.
In February, Virginia-based Capital One announced it was buying Discover for $35 billion. The merger is expected to close in late 2024 or early next year, pending regulatory approval.
Meanwhile, the SEC investigation into the credit card misclassification issue is ongoing. In its second-quarter earnings report filed in July, Discover said it had increased its liability to $1.2 billion to cover remediation, including a settlement agreement to resolve class action lawsuits filed by merchants affected by the misclassification.
In addition, the company “remains in discussion with its various regulators” regarding the credit card misclassification, recognizing a separate charge of $200 million for potential penalties in the matter, according to the quarterly filing.
Discover has also been named as a defendant in various lawsuits, including a class action brought by shareholders over the credit card issue.
Efforts to expedite settlements are being driven in part by the pending merger with Capital One, according to Discover’s financial filings.
The pending merger with Capital One may have also played a role in Discover’s decision to claw back equity awards now worth $8 million due Offereins, according to Sean Hecker, a New York-based attorney representing her in the lawsuit.
“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,” Hecker said in a statement.
The six-count lawsuit alleges breach of contract, as well as age and gender discrimination under both state and federal law. It is seeking the court to order Discover to award the canceled equity to Offereins and undisclosed punitive damages.
The Discover card was launched nationally in 1986 by then-owner Sears to compete for consumer wallet space with Visa, Mastercard and American Express. In addition to its signature credit card, Discover offers private student loans, personal loans, home loans and deposit products.
If the merger with Capital One is approved by regulators, it will bring together two of the largest non-bank credit card companies and potentially build the Discover payments network — a distant fourth in the market representing only 4% of credit card transactions — into a major competitor. The $35 billion all-stock acquisition values Discover at nearly $140 per share.
Discover’s stock price fell sharply last year in the wake of Hochschild’s resignation and the SEC investigation, trading below $80 in October 2023, but has since rallied in anticipation of the merger, closing at $138.12 per share Tuesday.
rchannick@chicagotribune.com
