Florida's attorney general has been investigating a possible privacy lapse at a J.C. Penney ( JCP) unit since August, but the company hasn't disclosed the probe in its regulatory filings. The civil probe comes as Penney seeks to defend a $100 million class action lawsuit against its Largo, Fla.-based Eckerd drugstore unit. It also comes at a time when Wall Street, still reeling from Enron and associated scandals, is particularly sensitive to companies' disclosure practices; Penney stock has been battered in recent weeks by rumors of accounting irregularities, which the company has denied.
Two weeks before Penney told investors in a press release that it was "unaware of any investigation or unannounced litigation," officials at Eckerd delivered subpoenaed documents to a Florida investigator, probing whether the company violated consumer protection laws. The investigation centers on allegations that the company used prescription forms that misled customers into agreeing to release personal information. Penney didn't comment on the allegations. An Eckerd spokeswoman, Tami Alderman, says the company didn't disclose the probe because it wasn't material. Web site indicates that's so. Many companies typically disclose any pending investigations or legal proceedings in an effort to let investors decide what is material or not, say legal experts. Indeed, the definition is far from concrete: The Supreme Court defines material information as "information that a reasonable investor needs to know in order to make an informed decision about an investment." But online auctioneer eBay ( EBAY) goes so far as to mention the possibility of an investigation. In its most recent quarterly filing with the Securities and Exchange Commission it said, "third parties have in the past and may in the future allege that actions taken by us violate the antitrust or competition laws." market capitalization of about $6 billion. Penney, whose shares more than doubled last year as the department store retailer embarked on a turnaround plan, dropped $1.22, to $21.90 Thursday.