TELECOM Digest OnLine - Sorted: U.S. Probing ChoicePoint Over Data Theft

U.S. Probing ChoicePoint Over Data Theft

Lisa Minter (
04 Mar 2005 11:03:59 -0800

By Aleksandrs Rozens

NEW YORK (Reuters) - Federal authorities are investigating the theft
of about 145,000 consumer profiles in databases of ChoicePoint Inc. as
well as trading in its stock by top executives, the company said on

ChoicePoint, which maintains personal profiles of nearly every
U.S. consumer, said the U.S. Securities and Exchange Commission, which
has opened an informal inquiry and the Federal Trade commission has
begun a separate inquiry.

The company, which sells its data to employers, landlords, marketing
companies and about 35 U.S. government agencies, also said it was
halting the sale of many information products that contain sensitive
consumer data, including social security and driver's license
numbers. It said, however, that exceptions would be made where there
is a specific consumer-driven transaction or benefit, or where the
products support federal, state or local government and criminal
justice purposes.

The company said the SEC is looking into the circumstances surrounding
the theft of the profiles and recent trading in ChoicePoint stock by
its chief executive officer, Derek Smith, and chief operating officer
and president, Doug Curling. The FTC, meanwhile, is conducting an
inquiry into ChoicePoint's compliance with federal consumer
information security laws.

"We intend to cooperate and to provide requested information and
documents to the Securities and Exchange commission," a ChoicePoint
spokeswoman said.

Also, "In November 2004, Mr. Smith and Mr. Curling adopted plans that
provide for prearranged sales of stock over a six-month period," the
company spokeswoman said. "These plans are typical for senior
executives of public companies and the plans were approved by the
company's board of directors."

ChoicePoint shares were nearly 4 percent weaker in mid-day trading on

Last month, ChoicePoint announced that criminals gained access to a
database of personal records after they posed as legitimate
businesses. The consumers whose data was accessed were from 50 states
and territories, according to ChoicePoint. These thieves got at
profiles of consumers that include Social Security numbers, credit
histories, criminal records and other sensitive material.

"Law enforcement officials have identified 750 consumers nationwide
where some attempt was made to compromise their identity," a company
spokeswoman told Reuters on Friday.

The identity thieves set up roughly 50 fraudulent business accounts to
gain access to the consumer data.

ChoicePoint's databases contain 19 billion public records, including
driving records, sex-offender lists and FBI lists of wanted criminals
and suspected terrorists.

The company, based in Alpharetta, Georgia, said its move to halt the
sale of some data containing sensitive consumer data will reduce 2005
core revenues by $15 million to $20 million and will reduce to
earnings by 10 to 12 cents a share.

Last year, ChoicePoint had core revenue of $884.4 million.

"The 10 to 12 cent number is a worst-case number. It assumes all lost
revenues will flow to the bottom line," said Andrew Jeffrey, analyst,
at Needham & Co. He added: "It assumes you maintain the same level of
costs and just have less revenue. The company will take some measures
to adjust its fixed costs and, as a result, the loss in revenues may
not all flow through to the bottom line."

Regarding the SEC's investigation, Jeffrey said it "obviously casts a
pall over the stock from a sentiment standpoint. The worst-case
scenario would be the departure of management. It would be a big
negative if that were to come to pass."

ChoicePoint said it will continue to serve most of its core markets
and customers, but its latest move will likely impact the availability
of information to certain customers, especially small businesses. The
move to limit the consumer data is expected to be completed within 90
days, the company said, adding that it has strengthened its customer
credentialing process.

In California, the only state that requires companies to disclose
security breaches, ChoicePoint sent warning letters to 30,000 to
35,000 consumers advising them to check their credit reports.

U.S. investigators notified the company of the breach in October, but
ChoicePoint did not send out the consumer warnings until last week.

Just last week, Bank of America Corp. said it lost data tapes
containing information on 1.2 million federal employee credit cards,
among them U.S. senators. Those tapes were lost in December, but bank
officials were not allowed to notify cardholders until they received
permission from federal law enforcement authorities.

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