ChoicePoint, the compiled data firm that has come under fire for selling consumer records to scam artists, will limit its sales of information products that contain sensitive consumer. The company also confirmed that the Securities and Exchange Commission has launched an investigation into the timing of stock sales by two top executives.
Separately, the data sale spurred two legislators, U.S. Rep Ed Markey (D-MA) and U.S. Sen. Bill Nelson (D-FL), to introduce companion bills in the House and Senate last week. The measures would give the Federal Trade Commission the right to oversee information brokers much in the same way the organization currently regulates credit bureaus that handle financial information.
ChoicePoint will discontinue selling its information products that contain data such as social security or drivers license numbers “except where there is a specific consumer driven transaction or benefit, or where the products support federal, state, or local government and criminal justice purposes,” according to a company statement.
At the same time, ChoicePoint announced that the Securities and Exchange Commission has launched an informal inquiry into trades of company stock made by the company’s CEO Derek V. Smith and COO Doug Curling. Smith and Curling realized a profit of $16.6 million on stock sold during the time between the internal disclosure that scam artists had received ChoicePoint Data and the company’s public disclosure of the sale.
The SEC actions are accompanied by requests from a variety of state Attorneys General for information that would help determine if ChoicePoint has violated state laws regarding consumer protection, according to a ChoicePoint document filed with the SEC. ChoicePoint did not list which states have requested this information, but did indicate that it would cooperate with the authorities in these inquiries.
In limiting its sales of sensitive personal information, ChoicePoint announced that any distribution of such data must meet one of three criteria. Going forward, such sales must:
* Support consumer driven transactions where the data is needed to further relationships such as insurance, employment, and tenant screening or to provide access to their own data;
* Provide authentication or fraud prevention tools to large, accredited corporate customers where consumers have existing relationships. This includes information tools for identity verification, customer enrollment, and insurance claims; or
* Assist federal, state and local government and criminal justice agencies in their important missions.
The company has further set up an independent office of credentialing, compliance and privacy. This office, which is based in Washington, DC and not in its headquarter city of Alpharetta, GA, will report to the board of directors’ privacy committee.
In a statement, ChoicePoint management indicated that the actions it is taking regarding evaluating its customer base will reduce the company’s core revenue by between $15-$20 million during 2005. Management also said that it would incur $2 million in credit report and monitoring service fees for consumers affected by the data sale.
The company is already the target of at least one shareholder class action lawsuit. Schiffrin & Barroway, a law firm based in Radnor, PA, named ChoicePoint, Smith, Curling and CFO Steven Surbaugh in its complaint. The suit was brought on behalf of all purchasers of the company’s common stock between April 22, 2004 and March 3, 2005.
The suit alleges that the defendants issued a series of material misrepresentations to the market regarding ChoicePoint’s financial condition, thereby inflating the price of the company’s stock, and that it failed to disclose material adverse facts which were known to them.
ChoicePoint maintains that the sales were part of a pre-arranged series of stock sales that had been approved by its board of directors before the disclosures.
