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NewsNotables – Issue 51

Stolen Laptop Leads to More Employee Data Loss

The Seattle Times, November 5, 2006
Starbucks said that personal data on 60,000 present and former employees and contractors was on two laptop computers missing from its Seattle headquarters. Starbucks is offering free credit-protection services for those affected to guard against possible identity theft.

A Starbucks employee realized in September that four laptops in a closet were gone, two containing personal data, including names, addresses and Social Security numbers. Starbucks currently has a policy that forbids carrying critical information like Social Security numbers on mobile equipment such as laptops. The mentioned data was placed on the missing computers before the policy went into effect.

Comment: It seems no matter how much attention this gets, it continues to happen for many companies. I guess that’s the human side of technology. Privacy Rights Clearinghouse lists a chronology of data breaches that number nearly 400, affecting nearly 100 million people.

Panel Urges Relaxing Rules For Oversight

The Wall Street Journal, November 30, 2006
A Blue-Ribbon committee on financial regulation has called for better protection of auditors, company employees and outside directors from authorities and lawsuits, as well as less-detailed rule-making and lower-key investigations.

The Committee on Capital Markets Regulation’s report is one of the most high profile efforts to date to address concerns that excessive regulation-much of it a response to recent corporate scandals- is adding to corporate costs, shifting the public securities markets and causing the U.S. markets to lose business to foreign competitors. “The United States is losing its leading competitive position,” the 148 page report says. One reason is “the growth of U.S. regulatory compliance costs and liability risk.”

Former Treasury Secretary Lawrence Summers has a little different view. He states, “Some of the specific suggestions are valuable, but the approach goes wrong in focusing so heavily on competitiveness when there is also much that needs to be done to better protect investors and assure the integrity of those who oversee and manage America’s largest corporations.”

Comment: It seems that most government regulation is made after financial failure without regard to its effectiveness and cost of implementation. Members of Congress ride in on their white horses and pass regulations they think will guarantee that the failure or fraud will never happen again. Enough time has gone by since the Sarbanes-Oxley Act was passed, so I think this is a good time to weigh its effectiveness verses implementation costs and its affect on competitiveness.

Freezing Out Identity Thieves

The Wall Street Journal, December 2, 2006
For years, consumer advocates have been pushing states to adopt laws that let individuals put a “freeze” on their credit files with credit reporting agencies. If your account is “frozen,” no new creditor would be able to open an account in your name without your personal identification number. In November, New York resident’s right to freeze went into effect. Twenty-two other states have passed right to freeze laws and five additional states will become freeze friendly in January.

Freezes don’t prevent all identity theft, but make it much more difficult for crooks to open new accounts in your name. Credit reporting agencies, retailers and lenders aren’t fans of the freeze. They worry you’re not fully aware of how often others need to check your credit. Thus, you could end up inconvenienced or miss out on deals if you can’t get thawed out in time to take advantage of them.

Comment: Some claim it takes as long as 72 hours to thaw out and others say it can be done in minutes, by just calling a store or car dealer and request unfreezing. Either way, the time it takes is well worth the convenience of being able to protect your data.

Jeffries Settles Probe of Lavish Gifts, but Fidelity Isn’t Clear of U.S. Scrutiny

The Wall Street Journal, December 3, 2006
Brokerage Firm Jefferies Group, Inc. has agreed to pay more than $10 million to settle allegations that a former star trader doled out gifts and entertainment, including expensive wine and private jet flights, to Fidelity Investments to win mutual fund trading business. Gifts ranged from $1,000 for a DVD Player to $140,000 for a Las Vegas golf outing. The National Association of Security Dealers (NASD) spearheaded the investigation, imposed a $5.5 million penalty and the SEC ordered Jefferies to return nearly $4.8 million of trading gains. Jefferies settled charges without admitting or denying guilt.

The SEC took no action against the mutual fund company Fidelity. Mutual funds are supposed to send their stock trades to whichever firm offers them, and their customers, the best price and service, and such decisions aren’t supposed to be based on gifts a fund manager may have received from the broker. The SEC has had difficulty trying to prove that investors were financially harmed because Fidelity traders accepted the gifts and entertainment.

Jefferies has disciplined more than 20 employees on the trading desk, including firing some.

Comment: NASD bars gifts valued at more than $100 and allows ordinary and usual business entertainment so long as it is neither so frequent nor so extensive as to raise any question of propriety. Jefferies and Fidelity certainly exceeded these rules by a huge measure. Entertainment expenses are at issue at almost all companies and should have defined limits and be under close scrutiny. The acceptance of these lavish gifts by Fidelity and the lack of discipline from the SEC, claiming difficulty proving that investors were financially harmed, is unbelievable.

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

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