ChoicePoint: Personal Data and a Loss of Privacy

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ChoicePoint Personal Data and a Loss of Privacy
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Overview

• The Moment, The Problem
• Timeline
• ChoicePoint Background
• The Personal Data Industry
• Key Issues
• Key Players
• Corporate Communication Issues Now and Going
  Forward

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The Moment, The Problem

• September 27, 2004
• ChoicePoint discovers possible fraudulent
  activity within their network of databases
• Realizes it may have allowed identity thieves in
  the Los Angeles area, posing as legitimate
  businesses (phony insurance companies,
  check-cashing companies, and other qualifying
  businesses) to access peoples personal
  information

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The Moment, The Problem

• Mid-October 2004
• Begin working with LASD
• Discover identity theft ring that had set up 50
  fake companies
• Criminals received everything from SSNs to credit
  reports, more than enough to steal identities
• 35,000 Californians and 110,000 other people
  across the country in all 50 states became
  potential victims of identity theft

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The Moment, The Problem

• Mid-October
• LASD delays disclosure to prevent hindering
  investigation
• Under California law, unlike the rest of the
  nation, citizens must be informed when personal
  information is compromised

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The Moment, The Problem

• October 26, 2004
• The first and only arrest to date is made
• A Nigerian man, Olutunji Oluwatosin, 41, was
  apprehended in a LASD sting operation
• Later sentenced to 16 months in CA state prison,
  pleading no contest to a single count of unlawful
  use of personal information

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The Moment, The Problem

• November 9th, 2004
• Executives begin a 6-month program to sell 24 of
  their ownership in the company
• Sell 458,000 shares, 20M in market value, 16M
  in profits, before public disclosure of identity
  theft problem

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The Moment, The Problem

• February 14, 2005
• ChoicePoint publicly discloses security breach
• Sends letters to California residents
• At this point, 750 identity theft victims had
  been identified

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The Moment, The Problem

• From February 14th to March 8th
• Stock plummets nearly 20

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The Moment, The Problem

• Why did it take four months to disclose the
  problem to the public? (Oct - Feb)
• Initially, LASD did not want to hinder
  investigation, but what about after that?
• LASD reports they told ChoicePoint in a letter to
  disclose in early November
• ChoicePoint says they were told to disclose in
  January
• LASD Lt. Costa ChoicePoint must have
  misinterpreted our letter

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Company Background

• Founded in 1997 when Equifax, an information
  management company, spun off its insurance
  services group
• Former Equifax VP, Derek Smith, and Sr. VP of
  Finance, Doug Curling start ChoicePoint as it is
  today from scratch
• From small insurance arm of Equifax to the
  premier provider of decision-making intelligence
  to businesses and governments
• Rapid growth through 60 strategic acquisitions

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• From small insurance arm of Equifax to the
  premier provider of decision-making intelligence
  to businesses and governments
• Rapid growth through 60 strategic acquisitions

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Company Background

• After 9/11/01, company surges through key
  acquisitions of Templar Corporation and IMapData
  Inc. (U.S. Government becomes one of main
  clients)
• Wide client base
• Insurance agencies, corporate employee screeners,
  check-cashing companies, non-profit
  organizations, media outlets, private
  investigators, law enforcement officials,
  landlords, other prospective employers

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Company Background

• Now, 19 billion public and private records
• Collects and sells financial, medical, and other
  personal records on billions of people
• 50,000 customers
• 5,500 employees
• FY2004 Revenue 900M
• FY04 record revenue, growing 14 per year
• FY04 Gross Margin 50
• Profit Margin 15

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Stock Price Data

• Symbol CPS on NYSE
• 52-week range 36.35 - 47.95
• Closing price on April 25th 39.90
• Insider/Institutional 3 / 82
• Market Capitalization 3.59 B (mid-cap)
• Market Cap before 2/15/05 4.4 B

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Stock Price Data
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The Personal Data Industry

• 5B Data-brokering Industry
• New one-stop shop phenomenon in last 10 yrs
• ChoicePoint, Lexis-Nexis, Acxiom
• Power of computers, lower costs of data storage,
  speed of internet
• Able to aggregate, store, and retrieve large
  amounts of information quickly

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Information Available for Purchase

• Social Security Numbers
• Current and previous addresses
• Credit information
• Employment history
• Motor vehicle records, drivers license
  information and vehicle identification numbers

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Information Available for Purchase

• Police and criminal records (includes 100 million
  conviction records and prison, parole and release
  records)
• Assets and property
• Insurance claims
• Professional licenses
• Fingerprint checks against those of some 46
  million criminals

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Key Issues

• Privacy in the Information Age
• Very low due to easy access of rapidly growing
  technology
• Very real, very widespread, universal issue
• Pros for this transparency and easy access to
  personal information
• You cant get much done in society without a lot
  of the products they provide Steve Harris,
  Former Sr. VP Corporate Communications, GM
• Hiring somebody, renting apartment to somebody,
  hiring drivers for your business
• Fundamental need in society for personal
  information to ensure safety, legitimacy,
  accuracy, credibility

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Pros for ChoicePoint

• ChoicePoint helped 100 million American consumers
  obtain fairly priced home and auto insurance
• Helped thousands of American businesses obtain
  commercial property insurance
• Helped 8 million Americans get jobs through
  workplace pre-employment screening services

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Pros for ChoicePoint

• Helped more than 1 million consumers expedited
  copies of their vital records birth, death, and
  marriage certificates
• Helped track down criminal child abductors and
  deadbeat dads
• Just today, ChoicePoint wins contract
  with...guess whothe state of Californias top
  prosecutor to keep track of suspected criminals
  fundamental need for this information

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Arguments Against Low Privacy

• Personal information falling into the hands of
  criminals
• More vulnerable not only to identity theft, but
  also to incorrect data profiles
• Errors and omissions in the data what if your
  employer or prospective employer receives the
  wrong information?
• Misunderstandings between the party using the
  information and the party that is portrayed
• Jeffrey Rosen, The Unwanted Gaze The Destruction
  of Privacy in America

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• Privacy protects us from being misdefined and
  judged out of context in a world of short
  attention spans, a world in which information can
  easily be confused with knowledge.

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Identity Theft

• One of the fastest growing crimes in the United
  States, in upwards of 900,000 people are
  victimized each year
• Costs consumers 5B each year
• Costs businesses 48B per year
• Threat to consumer confidence
• Puts major toll on the economy

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Current Regulation

• Data brokerage industry is largely unregulated
• Fair Credit Reporting Act
• Truly only applies to credit agencies
• Federal Trade Commission principles
• Certain types of information such as social
  security numbers are not to be used for marketing
  purposes
• State Laws
• California disclosure only one of its kind if
  had not been for this law, ChoicePoint would not
  have had to disclose breach
• Other state disclosure laws limited to certain
  industries such as financial institutions

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ChoicePoints Corporate Communication Team

• Small, consists of three full time personnel
• Two of which deal only with employee
  communications
• Have not had any experience with situations such
  as this

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Key Players

• Derek Smith, CEO of ChoicePoint
• CEO since spinoff from Equifax in 1997
• Made Chairman in 1999
• Highly respected in the industry and is seen as
  being on the leading edge of information
  technology
• Written several books on data privacy

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Key Players

• Derek Smith

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Key Players

• Derek Smith, CEO of ChoicePoint
• Advocate of using technology to combat terrorists
  and criminals
• Make our nation more secure while protecting
  civil liberties
• Serves on board of Society of International
  Business Fellows
• The Educational Foundation of Georgia State
  University

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Key Players

• Doug Curling, President, COO, and Director at
  ChoicePoint
• Has held CFO position as well
• Responsible for ChoicePoints acquisitions and
  thereby, successfully diversifying revenue
  sources
• Emphasizes efficient internal organization in the
  ever changing technology industry

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Key Players

• James Lee, Chief Marketing Officer
• Heads up Corporate Communications at ChoicePoint
• In charge of all internal and external messaging

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Corporate Communication Issues

• ChoicePoint knew they would have to come out with
  the news of the security breach
• Required by law to personally contact possible
  victims in California
• So when was it best to contact victims?
• November (LASD), January (CP), February (Actual)
• 4 months of preparation for the public disclosure
• In what form? Letters? Phone calls?
• What help to offer? Credit monitoring?

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Corporate Communication Issues

• What to do to resolve the internal security
  problems?
• What to do to reassure the public and investors?
• Not only a ChoicePoint issue here, Bank of
  America, Lexus-Nexus, the whole industry must
  answer these questions

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Corporate Communication Issues

• Working with Legislators
• Potential of being legislated out of business
• Privacy rights activists, industry experts, and
  elected officials calling for closer regulation
  of companies that compile large databases of
  consumer information
• CEO Derek Smith agrees with need for some level
  of increased regulation

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Corporate Communication Issues

• ChoicePoint Corporate Communication team
• James Lee will need additional help
• Did not have a team to begin with
• Who to hire as part of full-time Corporate
  Communications team?
• Who to consult? Receive guidance/advice from?
  Communicate with experts in Corporate
  Communication and Crisis Management

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Corporate Communication Issues

• Consumer Fear
• Definite impact on legislation
• What power does the consumer truly have here?
• Legal Battles
• California woman begins class-action lawsuit
• FTC / LASD investigations into exact timeline,
  occurrence of events, who knew what? When?
• SEC investigations continue regarding executive
  stock sales

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Corporate Communication Issues

• Several issues going forward
• Contact theft victims
• Deal with security controls
• Need for increased regulation
• Internal Corporate Communication team
• Privacy in society, consumer fear
• Legal Battles
• What steps has ChoicePoint taken?
• What steps must they take?