- The Washington Times - Friday, February 25, 2005

ATLANTA (AP) — ChoicePoint Inc.’s top two executives made a combined $16.6 million in profit from selling company shares in the months after the data warehouser learned that people’s personal information may have been compromised and before the breach was made public, regulatory filings show.

ChoicePoint’s stock has dropped about 10 percent since last week, when the company announced that criminals had duped it into allowing them access to its massive database.

Alpharetta, Ga.-based ChoicePoint says the stock trading was prearranged under a plan approved by the company’s board. Corporate governance experts say the pattern and timing of the trading by Chief Executive Derek Smith and President Douglas Curling raises questions.

Securities and Exchange Commission spokesman John Heine declined to say yesterday whether the agency is investigating.

Mr. Smith and Mr. Curling did not respond to repeated requests through a spokesman for comment yesterday. Mr. Smith told the Atlanta Journal-Constitution, which reported on the stock sales yesterday, that he doesn’t believe he did anything wrong, and asserted that he didn’t learn about the breach until late December or January. Mr. Smith told the Associated Press on Thursday that in October, “We voluntarily found the breach and notified law enforcement.”

ChoicePoint issued a statement yesterday that said the stock plans under which Mr. Smith and Mr. Curling sold their shares were “typical for senior executives of public companies and the plans were approved by the company’s board of directors.”

Records show Mr. Smith and Mr. Curling bought and sold 458,600 company shares in eight biweekly transactions between Nov. 9 — after the company had confirmed the breach — and Feb. 15 — the day the company publicly disclosed the breach.

The buying and selling by the two men continued in recent days, even as Mr. Smith has been working around the clock to keep major shareholders from running away.

Mr. Smith and Mr. Curling’s trading activity involving ChoicePoint stock was much less frequent by comparison in previous years, according to SEC records and an analysis with Thomson Financial. In 2003 Mr. Smith and Mr. Curling each made only one stock transaction, and in 2002 Mr. Smith made three transactions and Mr. Curling made one transaction, according to Thomson Financial.

In the recent trading, the options granted to them years ago allowed them to buy shares at significantly lower prices than the current market price — as low as $3.62 in one transaction. They then turned around and sold those shares at the market price at the time of the sales — as high as $46.82 in one transaction.

The buying and selling followed a ChoicePoint announcement Nov. 3 that Mr. Smith and Mr. Curling had each adopted trading policies allowing them to exercise up to a combined 737,380 shares, or 24 percent of their combined holdings in the company, between then and April of this year. The company said at the time that the options were near expiration.

That news release was issued just seven days after a Nigerian man suspected in the fraud scheme was arrested in California in a sting in which ChoicePoint participated.

It wasn’t until last week that ChoicePoint announced it was notifying roughly 145,000 Americans in all 50 states, the District of Columbia and three U.S. territories that their Social Security numbers and other personal information may have been viewed by criminals posing as legitimate ChoicePoint customers.

ChoicePoint said California authorities had asked them not to disclose the breach sooner to protect the fraud investigation.

“The sales raise questions, and those questions are going to get answered,” said Paul Lapides, a corporate governance expert at Kennesaw State University.

Mr. Lapides said it could very well turn out there wasn’t anything wrong with the stock sales.

“With that said, the timing of the exercise of these options could not have been much worse for the reputation of the company, its CEO and president,” Mr. Lapides said. “The company has apologized to customers. Now it is time for Mr. Smith and Mr. Curling to apologize to shareholders.”

ChoicePoint’s board of directors should hire an independent firm to investigate, Mr. Lapides said.

Peter Schaeffer, a securities lawyer in New York, said the trading policy that Mr. Smith and Mr. Curling adopted in November, made under Rule 10b5-1 of the Securities and Exchange Act of 1934, usually is only adopted when the executive doesn’t have material inside information that hasn’t been made public.

“I think that this is a lot of bad luck,” Mr. Schaeffer said. “It doesn’t look good and it does raise questions, but there are always circumstances that evolve and change over time. Without more information, I would suspect that is what occurred here.”

Charles Elson, a corporate governance expert at the University of Delaware, said the key question is going to come down to what Mr. Smith and Mr. Curling knew and when.

“At the very least, it might have been more prudent to trade after the information had surfaced in the public domain,” Mr. Elson said. “They would have avoided these questions had they waited.”

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