Identity theft protection company LifeLock (LOCK) got absolutely crushed yesterday after news broke that the Federal Trade Commission accused the company of falsely promising it would protect clients’ sensitive data. As a result, the stock lost half of its value in one day and fell to prices not seen since December 2012 — only a few months after its initial public offering.
According to the FTC, LifeLock has spent years violating an eight-figure settlement it agreed to pay after being accused of misrepresenting the protection it actually provides for its customers. In March 2010, the company agreed to pay $12 million, make changes to its business practices and refrain from false advertising claims.
Now, the FTC is saying that LOCK has still not set up a comprehensive program to protect its clients’ data (including credit card numbers, Social Security numbers and bank account numbers) and that the company has failed to keep the records it agreed to maintain. Plus, the FTC says LifeLock has continued its false advertising.
After trying to come to another settlement agreement for the last year, the FTC has asked a court to find LifeLock in contempt and to order it to reimburse its customers.
This is serious stuff. When the basis of a company is about protecting its customers from deception, being accused of deceptive practices is a potential death blow.
LOCK shares plummeted 49% to close Tuesday at $8.15. At one point, they fell as low as $7.70 — a level that LifeLock hasn’t seen since 2012. And while we’re seeing what looks like a dead-cat bounce Wednesday — not surprising after such a severe move yesterday — I would not attempt to catch the falling knife here.
LOCK stock has now lost half of its value, and with these accusations coming out for the second time, the potential risk far outweighs any likely reward in the next few months.
