FTC Beat
Sep 09
2013

With Complaint Against LabMD, FTC Continues to Flex Enforcement Muscle on Data Security

The Federal Trade Commission recently filed another complaint against a company for alleged data security lapses. As readers of this blog know, the FTC has initiated numerous lawsuits against companies in various industries for data security and privacy violations, although it is facing a backlash from Wyndham and large industry organizations for allegedly lacking the appropriate authority to set data security standards in this way.

The FTC’s latest target is LabMD, an Atlanta-based cancer detection laboratory that performs tests on samples obtained from physicians around the country. According to an FTC press release, the FTC’s complaint (which is being withheld while the FTC and LabMD resolve confidentiality issues) alleges that LabMD failed to reasonably protect the security of the personal data (including medical information) of approximately 10,000 consumers, in two separate incidents.

Specifically, according to the FTC, LabMD billing information for over 9,000 consumers was found on a peer-to-peer (P2P) file-sharing network. The information included a spreadsheet containing insurance billing information with Social Security numbers, dates of birth, health insurance provider information, and standardized medical treatment codes.

In the second incident, the Sacramento, California Police Department found LabMD documents in the possession of identity thieves. The documents included names, Social Security numbers, and some bank account information. The FTC states that some of these Social Security numbers were being used by multiple individuals, indicating likely identity theft.

The FTC’s complaint alleges that LabMD did not implement or maintain a comprehensive data security program to protect individuals’ information, that it did not adequately train employees on basic security practices, and that it did not use readily available measures to prevent and detect unauthorized access to personal information, among other alleged failures.

The complaint includes a proposed order against LabMD that would require the company to implement a comprehensive information security program. The program would also require an evaluation every two years for 20 years by an independent certified security professional. LabMD would further be required to provide notice to any consumers whose information it has reason to believe was or could have been accessible to unauthorized persons and to consumers’ health insurance companies.

LabMD has issued a statement challenging the FTC’s authority to regulate data security, and stated that it was the victim of Internet “trolls” who presumably stole the information. This latest complaint is yet another sign that the FTC continues to monitor companies’ data security practices, particularly respecting health, financial, and children’s information. Interestingly, the LabMD data breaches were not huge – with only 10,000 consumers affected. But, the breach of, and potential unauthorized access to, sensitive health information and Social Security numbers tend to raise the FTC’s attention.

While industry awaits the district court’s decision on Wyndham’s motion to dismiss based on the FTC’s alleged lack of authority to set data security standards, companies should review and document their data security practices, particularly when it comes to sensitive personal information. Of course, in addition to the FTC, some states, such as Massachusetts, have their own data security standards, and most states require reporting of data breaches affecting personal information.

Ifrah Law is a leading white-collar criminal defense firm that focuses on data privacy.

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Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, healthcare, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen, David Deitch, and associates Rachel Hirsch, Jeff Hamlin, Steven Eichorn, Sarah Coffey, Nicole Kardell, Casselle Smith, and Griffin Finan. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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