Why it's happening: Specifically in 2010, the FTC alleged that LifeLock had engaged in deceptive advertising regarding its claim to be a complete shield against identity theft. To settle the case, according to the FTC's original announcement, LifeLock agreed to pay a total of $12 million in charges and was also "barred from making deceptive claims and required to take more stringent measures to safeguard the personal information they collect from customers."
Today, however, the FTC stated in a press release that LifeLock hasn't lived up to its end of the settlement regarding both the false advertising and requirements to "establish and maintain a comprehensive information security program to protect its users' sensitive personal data." The FTC also alleges LifeLock has failed "to meet the 2010 order's recordkeeping requirements." More comprehensive details of the complaint are currently sealed in court documents.
LifeLock responded in its own press release: "After more than 18 months of cooperation and dialogue with the FTC, it became clear to us that we could not come to a satisfactory resolution of their issues outside of a court of law. We disagree with the substance of the FTC's contentions and are prepared to take our case to court."
LifeLock further elaborated that its members are its "highest priority, and we work hard to protect them against threats to their identity." Further, if those members do fall victim to identity theft, LifeLock gave a reminder that its "specialists step in," and the company spends up to $1 million to aid in remediation and recovery. Finally, LifeLock noted that the FTC's complaints are only related to its past -- not current -- business practices and so shouldn't affect LifeLock's current services or products.
That seems fair enough. But it also stands to reason that regardless of the outcome of this case, consumers could view LifeLock in a negative light considering the harsh nature of the FTC's complaint. Given the uncertainty surrounding the situation, it's unsurprising the market took such a big step back from LifeLock stock today.
Steve Symington has no position in any stocks mentioned. The Motley Fool recommends LifeLock. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.