ChoicePoint Slow to Acknowledge Data Theft

The Seattle Times, InformationWeek, Liberty Identity Theft Services, Network World Fusion, and other Internet sources in late February through March.
In October 2004, hackers gained access to the databases of ChoicePoint, a data collection company located in Atlanta, Georgia. ChoicePoint gathers very personal data on people throughout the U.S. using advanced data mining techniques, and then sells the data to credit providers, landlords, government agencies, and anyone who wants to buy the data. Estimates range from 145,000 to 400,000 people became vulnerable to identity fraud due to this stolen data. About 750 people whose data was stolen have reported some form of misuse of their data.

In February 2005, ChoicePoint notified about 45,000 customers from the state of California of this theft. They apparently did this because of the California state laws requiring such notification. California is the only state in the U.S. with such laws. The press picked up the story in late February, resulting in public pressure and causing ChoicePoint to notify the rest of those in its databases of the identity data loss.

ChoicePoint’s top two executives made a combined $16.6 million in profit from selling company shares between November 9, 2004 and February 15, 2005, according to regulatory findings. CEO Derek Smith reported that he believes he has done nothing wrong. The buying and selling by key executives continued according to a February 26 report, even as Smith worked around the clock to keep major shareholders from running away. ChoicePoint’s stock has dropped 15 percent since the announcements.

Lawsuits against ChoicePoint have begun, as have discussions of increased regulation against data gathering companies like ChoicePoint. (Compiled from multiple sources including

Comment: ChoicePoint’s handling of its data loss may have met the letter of the law but stands in stark contrast to the approach taken by TriWest Healthcare Alliance, the subject of the current IBTE Conversation with TriWest CEO David McIntyre. TriWest should be lauded for its more customer friendly approach, but it looks like it made a better long-term business decision as well.

Personal Lives of Executives Under Scrutiny

The Seattle Times, March 8, 2005
In the wake of Harry Stonecipher’s (Boeing CEO) forced resignation, it appears personal conduct, particularly when it involves a coworker, may be held to the same standards as job performance.

The Boeing board of directors asked for the resignation of Stonecipher after he admitted to an affair with an unmarried executive. In his second stint at Boeing, Stonecipher vowed he would lead with a “soft touch.” The tough talking executive was supposed to clean up the Boeing ethics problems, boost morale, and decisively put the company back on track.

Boeing’s Chairman, Lewis Platt, stated, “It’s not because he had a relationship. Harry was the staunchest supporter of the code of conduct. He drew a very bright line for all employees. He let everyone know that even minor violations would not be tolerated. When one does that, you have to live by that standard.”

Comment: Hurray for the Boeing board of directors for taking concise action. A leader of a large company, such as Boeing, has to be beyond reproach and set a very high standard for employees to follow. Stonecipher certainly failed to set a high standard.

AIG Admits Improper Accounting

The Wall Street Journal, March 31, 2005
American International Group, Inc., the world’s largest business insurance company, admitted to a broad range of improper accounting that could slash its net worth by $1.77 billion. The 93,000-employee company with operations in 130 countries outlined transactions that “appear to have been structured for the sole or primary purpose of accomplishing a desired accounting result.” It listed eight areas where a wide-ranging and still-continuing internal review has identified accounting problems or potential ones, and explicitly labeled as “improper” the treatment of a deal with a unit of Warren Buffett’s Berkshire Hathaway, Inc.

Among AIG’s admissions: It used insurers in Bermuda and Barbados that were secretly under its control to bolster its financial results, including shifting some liabilities off its books.

Amid a wave of financial scandals that have toppled corporate executives in recent years, AIG’s woes stand out. Unlike Enron, WorldCom and HealthSouth—all highfliers that rose to prominence in the 1990’s—AIG has been a solid blue chip for decades. Its stock is in the Dow Jones Industrial Average, and its long time CEO, Maurice R. “Hank” Greenberg, was a globe-trotting icon of American business. Insurance analysts have placed Hank on a virtual pedestal for years.

Civil and criminal probes already have forced the departure of the 79-year-old Mr. Greenberg after nearly four decades at AIG’s helm. Investigators are closely examining the actions of Mr. Greenberg and several other top AIG officials who have quit or been ousted in recent days, including its former CFO, the architect of its offshore operations in Bermuda, and its reinsurance operations chief. (The Wall Street Journal, March 31, 2005)

Comment: What sad times for American business. AIG and Mr. Greenberg have been held in extremely high esteem for decades and it seemed that they could do no wrong. But, it seems they wanted just a little more. The probes of AIG and Berkshire Hathaway will go on for some time.

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics