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 Friday.
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 Friday.
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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