updated 1/26/2006 10:07:48 AM ET 2006-01-26T15:07:48

Data warehouser ChoicePoint Inc. said Thursday it is close to a settlement of a Federal Trade Commission investigation of a major data breach at the company that will include a civil penalty, as it reported a more than 29 percent drop in fourth-quarter profit.

The Alpharetta, Ga.-based company, which had revealed last year that its massive database of consumer information was accessed by thieves, also said the settlement will include establishment of a fund to be administered by the FTC for consumer redress initiatives and completion of certain customer credentialing activities.

The company, which also is the subject of a pending Securities and Exchange Commission probe, said it does not admit to any wrongdoing in the FTC probe. It did not specify the amount of the penalty, but an FTC announcement could come later Thursday.

“This was obviously in some ways a watershed year for ChoicePoint,” Doug Curling, the company’s chief operating officer, said in a conference call with investors.

Stock trades by Curling and Derek Smith, ChoicePoint’s chief executive officer, are being investigated by the SEC. Curling and Smith made a combined $16.6 million in profit in the months after the company learned of the data breach and before the breach was made public.

ChoicePoint has said the stock trading was prearranged and approved by the company’s board. Corporate governance experts say the pattern and timing of the trading raise questions. The company’s stock dropped about 10 percent in the weeks after the breach was announced. It later rebounded. Company officials said Thursday they continue to cooperate with the SEC probe. They did not give details of the status of the probe.

For the three months ending Dec. 31, ChoicePoint said it earned $27.68 million, or 30 cents a share, compared to a profit of $39.22 million, or 43 cents a share, for the same period a year ago.

The results missed Wall Street expectations.

Excluding one-time expenses related to the data breach announced in February 2005, ChoicePoint said it earned $39.74 million, or 44 cents a share. On that basis, analysts surveyed by Thomson Financial were expecting earnings of 45 cents a share.

Revenue rose 11 percent to $257.85 million, compared to $232.46 million a year ago.

For all of 2005, ChoicePoint said it earned $140.66 million, or $1.53 a share, compared to a profit of $147.96 million, or $1.62 a share, for the same period a year ago. Twelve-month revenue rose to $1.06 billion, compared to $918.71 million in 2004.

ChoicePoint said it expects 2006 full-year internal revenue growth to be in the 7 percent to 9 percent range, exclusive of any acquisitions.

The data breach involved thieves posing as small business customers who gained access to ChoicePoint’s database, possibly compromising the personal information of 145,000 Americans. The company discovered the breach more than four months before disclosing it to the public. ChoicePoint has said authorities asked it to keep the information secret initially.

Authorities say at least 750 people were defrauded in the scam that has fueled consumer advocates’ calls for federal oversight of the loosely regulated data-brokering business. The company also is a defendant in several lawsuits and complaints arising from the breach, and several government agencies are investigating.

“One of our greatest concerns is safeguarding consumer information,” Curling said Thursday. Regarding changes it has made since the breach, Curling said, “The actions we have taken were the right thing to do.”

The company said future legal expenses related to the fraudulent data access are currently estimated at $4 million to $6 million for 2006, exclusive of any potential settlements, with the majority of these expenses incurred during the first two quarters.

Business model changes the company is implementing because of the breach are expected to bring further operating charges estimated at $8 million to $10 million, with the majority of these expenses expected to be recorded in the first quarter of 2006, ChoicePoint said.

ChoicePoint collects data on individuals, including Social Security numbers, real estate holdings and current and former addresses. It has about 19 billion records, and its customers include insurance companies, financial institutions and federal, state and local agencies.

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