By Ellen Nakashima and Robert O'Harrow Jr.
Washington Post Staff Writers
Friday, February 22, 2008; D01

Publishing company Reed Elsevier, owner of the LexisNexis Group, is seeking to acquire commercial data broker ChoicePoint in a $4.1 billion cash deal that would create a global information-gathering powerhouse that would collect and analyze billions of records about who people are, where they live and with whom, and what they own.

With customers including government agencies, insurance companies, banks, rental apartments, corporate personnel offices and private investigators, the combined company's reach would extend from national security offices to the living rooms of ordinary Americans.

Both companies have played key roles in law enforcement, homeland security and intelligence. Both have also had identity-theft and security problems.

The deal, announced yesterday by Reed Elsevier, which is based in London, is a bid to increase the company's risk-management business. It comes at a time of exploding demand for ways to establish identity, discern fraud, and detect criminal and other threats by sorting through electronic records. Companies like ChoicePoint and Reed Elsevier seek to amass vast amounts of data and to analyze the information relevant to companies and government agencies.

"We just think it's a logical next step in the use of our capabilities," said James Peck, chief executive of LexisNexis Risk and Information Analytics Group, the division that would acquire ChoicePoint.

The proposed acquisition could have important, if difficult to discern, implications for Americans, whose personal information has become more scrutinized than ever before by information companies and corporations for marketing and security.

LexisNexis and ChoicePoint flourished over the past decade, a time when computing power soared and methods of gathering data became more sophisticated. But they have different strengths, and a combined company would give them a deeper look into American homes and a combined influence on processes as varied as national-security probes, insurance claims and job applications.

"Increasingly, this is less about what big business knows and more about how business uses information to make decisions about consumers," said Marc Rotenberg, executive director of the Electronic Privacy Information Center. "Both of these companies are having an increasing say over the opportunities that are available to consumers as well as to decisions that restrict individuals."

Since it began in 1997 as a reseller of credit data, ChoicePoint, headquartered in Alpharetta, Ga., has bought dozens of companies to become an all-purpose data broker. In recent years, the company has focused on refining data with analytical software. With a few clicks of a mouse, ChoicePoint's law enforcement, government and corporate customers can access information about personal holdings and activities.

"In a single report, ChoicePoint provides not only comprehensive data on the target of an inquiry, but also on associates, relatives, assets, affiliated companies, and neighbors, information which no other vendor offers in the same concise format," according to documents describing a 2007 contract with the Department of Energy.

ChoicePoint maintains the most extensive repository of insurance information obtained from claims applications, and it has developed systems that analyze that data to judge whether companies should offer a customer coverage or pay claims. The system, called the Comprehensive Loss Underwriting Exchange, receives data from almost every insurer about automobile and homeowners coverage.

LexisNexis, known for its legal and media services, also manages records about U.S. adults. The Risk and Information Analytics Group focuses on helping government, police and corporate customers peer into individuals' details to judge them for risk.

One of the group's more important assets is a computer system that came with the purchase in 2004 of Seisint, an information service. Seisint created a controversial tool called the Matrix, which gave state and federal authorities new power to analyze records about Americans after the Sept. 11, 2001, terrorist attacks. At the time, officials at LexisNexis said the technology would help government investigators who were scrambling to improve the collection, analysis and sharing of information in the war on terrorism.

Now, the Risk and Information Analytics Group works with collections firms and health-care, financial services and insurance companies, along with local, state and federal agencies.

ChoicePoint disclosed in 2005 that it had mistakenly sold personal information on 145,000 Americans to identity thieves. In 2006, it was fined $10 million by the Federal Trade Commission over its failure to protect consumers' personal data. In 2005, a security breach at LexisNexis exposed as many as 310,000 consumers' Social Security numbers, driver's license numbers, names and addresses.

ChoicePoint has since reformed its data-security practices, and some civil libertarians say it has become a leader in privacy.

Still, the proposed acquisition raises significant issues that regulators must weigh, Rotenberg said.

"These are companies that will be able to sell very detailed profiles of individuals to businesses, insurers, government agencies and others, but individuals do not currently have a right to see what information about them is being sold to third parties," he said. "That is a very big privacy issue."

Peck said the two companies' services are aimed at protecting people's identities. "When you put two organizations like ours together, we're going to be able to provide our customers -- financial institutions, health-care providers, law enforcement -- a better tool to fight identity fraud. They're actually helping to protect people rather than creating some privacy issue."

The deal, which requires approval from either the Justice Department or the FTC, is expected to close this summer.

Staff researcher Richard Drezen contributed to this report.