Shares of LifeLock (LOCK), an identity theft and fraud protection company, took a nasty tumble on Tuesday after the Federal Trade Commission filed a claim asserting the company wasn’t living up to its promises.
LOCK stock took a massive hit, shedding 40% in a matter of minutes on the news.
LOCK fell so swiftly that it was actually halted mere minutes after its descent; it would go on to resume trading and fall further, ending with nearly 50% losses on the day.
LifeLock stock, which was up 27% in the past year before today’s precipitous fall, was right to react so violently to the news. The company has been on thin ice with the FTC for years now, and the fact that the regulators are taking action against the company doesn’t bode well for the LOCK stock price in the coming years.
Serious Charges
In 2010, LifeLock agreed to a settlement with the FTC and 35 state attorneys general, paying $12 million in consumer refunds related to charges that the company made false claims about the identity theft services it provided consumers.
According to the FTC, LOCK violated that agreement by “continuing to make deceptive claims about its identity theft protection services, and by failing to take steps required to protect its users’ data.”
This is a textbook case of bad press and a damaging blow to the LifeLock brand. Worse, LOCK stock investors are rightfully concerned that another pesky settlement could be in order. With net income of $2.5 million last year, another $12 million settlement would have plunged LifeLock into the red.
LifeLock, for what it’s worth, vigorously disputes the charges and says that after 18 months of out-of-court negotiations they are “prepared to take our case to court.” The company also downplayed the substance of the claims.
Call me crazy, but I wouldn’t go hunting for value with LOCK stock, regardless of how much the company downplayed today’s FTC actions. LifeLock wants you to know that it’s still trustworthy, though:
“Importantly the FTC is not seeking any relief that would change LifeLock services and products going forward. The claims raised by the FTC are all related to the past, not to current business practices.”
Despite having former Secretary of Homeland Security Tom Ridge on its board of directors, it seems some higher-ups in government are still skeptical of LifeLock’s claims.
I wouldn’t venture to say today’s LOCK stock breakdown is shocking considering the nagging issues it has had with its services in recent years, but the market sure took it as a surprise. I’d avoid any play involving LifeLock going forward, as there’s just no way to tell what the most recent FTC assault will bring.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
