ChoicePoint

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ChoicePoint Corporation
ChoicePoint company logo
Type Public (NYSE: CPS)
Founded n/a
Headquarters Alpharetta, Georgia, USA
Key people Derek V. Smith, CEO
Douglas C. Curling, President/COO
Steven W. Surbaugh, CFO
J. Michael de Janes, Gen. Counsel
David T. Lee, Exec. VP
Industry Business Services
Products "Identification and credential verification services"
Employees 4,600
Website www.choicepoint.com

ChoicePoint (NYSE: CPS) is a corporation based in Alpharetta, near Atlanta, Georgia, USA, which claims to be the "nation's leading supplier of identification and credential verification services". According to the Transportation Security Administration (TSA), the firm keeps more than 17 billion records of individuals and businesses, which it sells to more than half of America's top 1,000 companies[1]. It also contracts with over 7,500 state and local government agencies, including law enforcement.

ChoicePoint provides risk management and fraud prevention information, primarily to the insurance industry. Its Insurance Services division provides such underwriting and claims information as motor vehicle reports, claims histories, customized policy rating and issuance software, and property inspections and audits. The company's business and government services include pre-employment drug screening, shareholder searches, credential verification, and background checks.

ChoicePoint maintains a database of names, addresses, Social Security numbers, credit reports, and other sensitive information. Its DNA laboratory aided in the identification of victims of the WTC attacks, and data supplied by ChoicePoint was used in the Beltway Snipers investigation.

ChoicePoint operates the Comprehensive Loss Underwriting Exchange (CLUE), a database used by insurance companies to share histories of claims or damage reports on property[2]. Its tables include identification information on properties such as homes and automobiles, records on policies (name, date of birth, policy number), and records of claims (date and type of loss, amounts paid)[3]. As of 2006, history is kept for five years[2][3]. It contains records of damage reports regardless of whether the damage resulted in a claim[2].

Choicepoint also assisted the Transportation Security Administration in investigating 112,278 applicants[1]. The US Department of Justice and the National Center for Missing and Exploited Children credit the corporation with assisting in the return of ~800 missing children[citation needed].

Contents

[edit] Controversies

[edit] Major security breach in 2004

ChoicePoint announced in February 2005 that the personal information of at least 145,000 Americans from all 50 states has been breached. Thieves used previously stolen identities to create apparently legitimate businesses seeking ChoicePoint accounts. Over the course of more than a year[4], they then opened about 50 accounts and received personal information on consumers including names, addresses, and identification numbers. The old-fashioned scheme, that did not involve any hacking, allowed each fake company account to collect "just enough data to fly under the radar" [5] in order to facilitate "at least 750 cases of identity theft" [6].

Congressional hearings on the breach have revealed that ChoicePoint disclosed in recent SEC filings that it was only looking for victims from the data leak incident whose information had been stolen after July 1, 2003, the effective date of a California law requiring that victims of personal information breaches be notified[7]. Members of Congress rebuked the company for selling such information and have proposed federal privacy reforms.

A 41-year-old Nigerian citizen, Oluwatungi Oluwatosin, was arrested in October with five cell phones and three credit cards that belonged to other people, according to investigators. He was sentenced by the Los Angeles County Superior Court in February to 16 months in prison.

The ordeal has so far cost ChoicePoint 11.4 million USD — about 2 million USD in notifying victims of the incident, and the remaining 9.4 million USD in "legal and professional fees". However, the corporation's stock remains stable at 40 cents/share — the same as a year ago. The company announced in March 2005[citation needed] that it will spend between 15 and 20 million USD in total during the 2005 fiscal year to prevent further breaches and to reduce earnings by 10 to 12 cents per share.

According to the Associated Press, ChoicePoint suffered a previous similar, less publicized, ID theft in 2002. Allegedly the suspects, also of Nigerian origin, pulled a similar scam of establishing fake businesses in order to make between 7,000 and 10,000 inquiries on names and Social Security numbers to commit at least 1 million USD in fraud [8].

In January 2006, as a result of the 2004 breach, ChoicePoint was fined $15 million by the Federal Trade Commission. $10 million was a civil penalty and $5 million was to be used to pay victims of the security breach. In addition, ChoicePoint was required to take steps to better secure customer identities. [9]

[edit] Florida voter file contract

For more information regarding the voter file in the context of the 2000 election controversy, see Florida Central Voter File, 2000 Florida Election Controversy

In 1998, the state of Florida signed a 4 million USD contract with Database Technologies (DBT Online), which later merged into ChoicePoint, for the purposes of providing a central voter file listing those barred from voting. As of 2002, Florida is the only state which hires a private firm for these purposes. Prior to contracting with Database Technologies, Florida contracted with a smaller operator for 5,700 USD per year[citation needed]. The state of Florida contracted with DBT in November 1998, following the controversial Miami mayoral race of 1997. The 1998 contracting process involved no bidding and was worth 2,317,800 USD[citation needed].

ChoicePoint has been criticized[citation needed], by many critics of the 2000 election, for having a bias in favor of the Republican Party, for knowingly using inaccurate data, and for racial discrimination. Allegations include listing voters as felons for alleged crimes said to have been committed several years in the future. In addition, people who had been convicted of a felony in a different state and had their rights restored by said state, were not allowed to vote despite the restoration of their rights. (One should note Schlenther v. Florida Department of State (June 1998) which ruled that Florida could not prevent a man convicted of a felony in Connecticut, where his civil rights had not been lost, from exercising his civil rights.) Furthermore, it is argued that people were listed as felons based on a coincidence of names, despite other data (such as date of birth) which showed that the criminal record did not apply to the voter in question.

Journalist Greg Palast has shown[10] that the firm cooperated with Florida Governor Jeb Bush, Florida Secretary of State Katherine Harris, and Florida Elections Unit Chief Clay Roberts, in a conspiracy of voter fraud, involving the central voter file, during the US Presidential Election of 2000. The allegations charge that 57,700 people (15% of the list), primarily Democrats of African-American and Hispanic descent, were incorrectly listed as felons and thus barred from voting. Palast estimates that 80% of these people would have voted, and that 90% of those who would have voted, would have voted for Al Gore. The official (and disputed) margin of victory, in the election, was 537 votes.

ChoicePoint Vice President Martin Fagan has admitted that at least 8,000 names were incorrectly listed in this fashion when the company passed on a list given by the state of Texas, these 8,000 names were removed prior to the election. Fagan has described the error as a "minor glitch." ChoicePoint, as a matter of policy[citation needed], does not verify the accuracy of its data and argues that it is the user's responsibility to verify accuracy.

On April 17, 2000, at a special Congressional hearing in Atlanta, ChoicePoint Vice-President James Lee testified (the actual transcript of this hearing is needed) that Florida had ordered DBT to add to the list voters who matched 80% of an ineligible voter's name; middle initials and suffixes were to be dropped, while nicknames and aliases were added. In addition, names were considered reversible, for example; Clarence Thomas could be added in place of Thomas Clarence. Lee opened his testimony by noting that ChoicePoint intended to get out of the voter purge industry. Then, on February 16, 2001, DBT Senior Vice-President George Bruder testified before the U.S. Commission on Civil Rights that the company had misinformed the Florida Supervisors of Elections regarding the usage of race in compiling the list. Greg Palast concludes, "An African-American felon named John Doe might wipe out the registration of an innocent African-American Will Whiting, but not the rights of an innocent Caucasian Will Whiting." Palast believes that 80% of the 57,700 people allegedly barred from voting were African-American.

[edit] Civil Rights Commission Report on 2000 Florida Elections

The United States Civil Rights Commission, in its official report on the 2000 Presidential Elections (www.usccr.gov/pubs/vote2000/report/ch5.htm), concluded the following.

Summary (unedited)

Historically, individuals convicted of certain types of crimes alleged to be committed more by African Americans are affected by felon disenfranchisement. The practice of felon disenfranchisement has resulted in the greater likelihood of people of color, particularly African Americans, appearing erroneously on the Florida felon exclusion list.

In claiming to address the same types of fraud found during the 1997 Miami mayoral election, the Florida legislature enacted chapter 98.0975 of the Florida statutes, which required the Division of Elections to contract with a private entity to purge its voter file of deceased persons, duplicate registrants, individuals declared mentally incompetent, and convicted felons without civil rights restoration. [214] As a result, DBT Online was eventually retained to assist the Division of Elections in the removal of ineligible voter registrants from the voter file.

DBT Online performed an automated matching process against databases provided by the state of Florida and its own databases. Ultimately 173,127 Floridians were identified as potentially ineligible to vote in the November 2000 election. Of those on the list, 57,746 were identified as convicted felons. Based on DBT Online’s statistical verification, the list it provided to the Division of Elections was 99.9 percent accurate. The Division of Elections distributed the relevant portions of the list to the 67 supervisors of elections.

The Division of Elections instructed DBT Online to verify the clemency status of any alleged convicted felon, even those convicted in states with automatic civil rights restoration, with the Florida Executive Clemency Board. Among those states with their own executive clemency boards, DBT Online was instructed to confirm the alleged felons’ clemency status with the board. The methodology adopted by DBT Online to verify the clemency status of those alleged felons basically consisted of faxing a list to the appropriate state agency.

DBT Online was not required to provide a list of exact name matches. Rather, the matching logic only required a 90 percent name match, which produced “false positives” or partial matches of the data. Moreover, the Division of Elections required that DBT Online perform “nickname matches” for first names and to “make it go both ways.” Thus, the name Deborah Ann would also match the name Ann Deborah.

At a meeting in early 1999, the supervisors of elections expressed a preference for exact matches on the list as opposed to a “fairly broad and encompassing” collection of names. DBT Online advised the Division of Elections that it could produce a list with exact matches. Despite this, the Division of Elections nevertheless opted to cast a wide net for the exclusion lists.

Former director of the Division of Elections, Ethel Baxter, in 1998, recommended to the supervisors of elections that if there was any doubt as to the accuracy of an individual’s status, the voter should be allowed to vote by affidavit. Despite knowing the exclusion lists contained many errors, there is no record that the Division of Elections provided similar cautionary advice to the supervisors of elections for the 2000 presidential election. The evidence does show that some election officials decided that it further served the state’s interests to capture as many names as possible on these exclusion lists.

The process by which each county verified its exclusion list was as varied and unique as the supervisors of elections themselves. Some supervisors of elections sent letters to the alleged felons and held hearings to allow them to produce evidence of their clemency status or establish they were on the list in error. Other supervisors chose not to use the exclusion list at all.

Although the Commission’s record reflects that the Division of Elections is responsible for coordinating two statewide workshops annually for the supervisors of elections to ensure uniformity in the interpretation of Florida election laws, the complaints registered by some supervisors of elections suggest that there was no common understanding of the use of the exclusion lists. The Florida legislature’s decision to privatize its list maintenance procedures without establishing effective clear guidance for these private efforts from the highest levels, coupled with the absence of uniform and reliable verification procedures, resulted in countless eligible voters being deprived of their right to vote.

[edit] Other controversies

  • DBT Online was founded by Hank Asher as Database Technologies. The group once had a data management contract with the FBI, however, this was terminated following allegations that Asher was associated with Bahamian drug dealers[11]
  • In January 2000, Pennsylvania terminated its contract with ChoicePoint after alleging that the firm had illegally sold citizens' personal information. Choicepoint regained limited access to Pennsylvania drivers records in December of 2000, after negotiations which included a $1.375 million dollar fine and an agreement to abide by more stringient contract requirements. The new agreement restricts ChoicePoint to only use the data for insurance-related purposes, and can be terminated by the state at any time.[1]
  • MSN Money columnist Liz Pulliam Weston wrote a column[2] about a Bremerton, Washington couple, State Farm Insurance customers for 30 years, who discussed an incident of rainwater damage to their home with the company. They ended up not filing a claim, thus maintaining a claim-free history for their home. In spite of the claim-free history, State Farm dropped them as customers, and shared information on their water damage with ChoicePoint's CLUE database. That sharing led the couple to be repeatedly denied coverage by other insurance companies. The column also describes anecdotal evidence cited by real estate agents that information obtained from CLUE has caused home sales to fall through.
  • Journalist Greg Palast alleged in 2006 that ChoicePoint had illegally provided voter rolls to conservative factions in Venezuela and Mexico that were used to influence elections in those countries. [2]

[edit] Corporate governance

As of 2006, ChoicePoint's CEO is Derek V. Smith, who has held that position since 1997. In 2005, ChoicePoint generated earnings of more than $1 billion USD, an increase of 15 percent from the previous year. The company employs ~5,500 people at 60 locations in the United States and United Kingdom.

DBT competes with Seisint, Asher's later creation. Seisint was sold to LexisNexis earlier this year (2004) for 775 million USD. **


[edit] Media Comments about ChoicePoint

"One of the nation's biggest information services has begun warning more than 100,000 people across the country they may be targets of fraud, following disclosures the company inadvertently sold personal and financial records to fraud artists apparently involved in a massive identity theft scheme."

"ChoicePoint Inc. electronically delivered thousands of reports containing names, addresses, Social Security numbers, financial information and other details to people in the Los Angeles area posing as officials in legitimate debt collection, insurance and check-cashing businesses." - Washington Post, February 17, 2005


"Eighteen months ago, it took a year's worth of thieving to clue in ChoicePoint to the existence of the then-novel problem...Eighteen months ago, ChoicePoint waited months to inform the victims of its security breach...Eighteen months ago, ChoicePoint set the standard for protecting the victims of identity theft when it offered all affected persons a full year's free coverage by a credit monitoring service." - Rich Smith, The Motley Fool, August 30, 2006


"The Human Rights Campaign has given ChoicePoint a perfect 100 on its corporate equality index. According to the Washington-based anti-discrimination group, ChoicePoint was one of 138 companies nationwide that received perfect scores for their treatment of gay, lesbian, bisexual and transgender employees, customers and investors." - Atlanta Journal-Constitution, October 12, 2006

[edit] Awards and Acknowledgements

2006 - Technology Fast 50 - #34 on list with 61% growth

2006 - Human Rights Campaign - Best Places to Work

2004 - Software & Information Industry Association - Excellence in Giving Award

2004 - Atlanta Woman magazine - Good Company of the Year

2003 - Women in Technology's Best Employers in Georgia - Best Employer Overall

2003 - Atlanta Business Chronicle - ChoicePoint listed as one of Georgia's top 50 public companies

2003 - Business 2.0 magazine - ChoicePoint ranked as one of the nation's fastest growing technology companies

2003 - Atlanta Business Chronicle - A+ Employer in Georgia (#8 large employer)

2003 - Atlanta Business Chronicle - ChoicePoint ranked as one of technology's most valuable corporations in Georgia

2002 - Technology Association of Georgia - Large Technology Company of the Year

2002 - Business to Business magazine - Company of the Year

2002 - Women in Technology/TECHLinks magazine - Best Places for Women to Work in Technology (#5)

2002 - Atlanta Business Chronicle - A+ Employer in Georgia (#15 overall, #4 large employer)

2002 - U.S. Department of Justice and National Center for Missing and Exploited Children - Corporate Leadership Award

2002 - Technology Association of Georgia - FastTech 50 (top performing technology companies)

2001 - Technology Association of Georgia - Large Technology Company of the Year

2001 - Technology Association of Georgia - FastTech 50 (top performing technology companies)

2001 - Atlanta Volunteerism Council - IMPACT Award for Overall Corporate Citizenship

1999 - Business to Business magazine - Atlanta's Most Admired Companies (#4)

[edit] References

  1. ^ a b http://www.tsa.gov/public/display?theme=81&content=090005198002d4e5
  2. ^ a b c d http://moneycentral.msn.com/content/Insurance/Insureyourhome/P35345.asp
  3. ^ a b http://www.insurance.wa.gov/factsheets/factsheet_detail.asp?FctShtRcdNum=13
  4. ^ http://sfgate.com/cgi-bin/article.cgi?f=/n/a/2005/02/17/state/n041832S59.DTL
  5. ^ http://www.redherring.com/Article.aspx?a=11336&hed=The+Choicepoint+incident
  6. ^ http://news.com.com/Break-in+costs+ChoicePoint+millions/2100-7350_3-5797213.html?tag=nefd.top
  7. ^ http://www.msnbc.msn.com/id/7189143/page/2/
  8. ^ http://www.siliconvalley.com/mld/siliconvalley/business/special_packages/security/11031011.htm
  9. ^ http://news.ft.com/cms/s/b02019f4-8ea2-11da-b752-0000779e2340.html
  10. ^ http://gregpalast.com/detail.cfm?artid=502&row=0
  11. ^ The Best Democracy Money Can Buy, p. 18

[edit] External links

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