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"Spychip" corporation hides implant risks in stock offering
Monday, February 12— VeriChip Corporation, purveyor of the VeriChip human ID implant, is airing its dirty laundry this week. This is not by choice, but because the Securities and Exchange Commission (SEC) required the company to disclose its "risk factors" prior to launching its Initial Public Offering of stock (IPO) Friday.
The company lays out nearly 20 pages of risk factors in its Form S-1 Registration Statement, a required document for the IPO. But what the company failed to reveal in its filing may be even more eye-opening, say CASPIAN privacy advocates Dr. Katherine Albrecht and Liz McIntyre. The pair, who have written a series of books on the subject, have been vocal critics of VeriChip, dogging the company in recent years and facing down its senior executives on radio and national television.
"Potential investors should be told how a hacker can simply walk by a chipped person and clone his or her VeriChip signal, a threat demonstrated by security researcher Jonathan Westhues months ago," says McIntyre, who is a former federal bank examiner.
"Omitting the cloning threat from its SEC documents is a serious oversight that could affect the value of VeriChip's stock. This is materially relevant information, considering VeriChip's claim that its product could be used to tighten security in facilities like nuclear power plants," she adds.
The RFID Hacking Underground, Wired Magazine
Verichip also failed to disclose to investors and the SEC that patients' VeriChip implants might not be readable in ambulances. VeriChip's chipping kit literature cautions that ambient radio waves, like those in ambulances, can interfere with the equipment that reads the implanted tags, but this important fact somehow didn't make its way into the SEC filing.
Even with crucial information missing, investors may still find themselves scratching their heads over poorly conceived aspects of VeriChip's business model. "Anyone reading VeriChip's SEC filing would have second thoughts about the stock," says Albrecht. "Who, after all, would invest in a company that expects patients to document their own medical history and blood type in a database? This could prove risky for anyone, not to mention the elderly, Alzheimer's, and cognitively impaired patients that VeriChip is targeting."
She cites a passage from the registration statement that reads, "we anticipate that individuals implanted with our microchip will take responsibility for inputting all of their information into our database, including personal health records."
Other risks identified in the VeriChip filing could also scare investors away. These include anticipation of ongoing multi-million dollar loses, the "modest" number of people willing to get chipped, public opposition, and the risk that the microchip may be found to damage a person's health. The company also warns that it could be subject to lawsuits and loss of confidence if its patient database is unavailable in an emergency. The company admits that the database has been unavailable in the past.
The market seemed to be catching on to some of these problems as VeriChip began offering stock Friday in a bid to raise million of dollars to fund its human chipping operations. Analysts noted a "lukewarm reaction" to the stock and that it was trading on "the low end of the expected range."
VeriChip Form S-1 Registration Statement (Amendment No. 7)
The VeriChip implant is a glass encapsulated RFID tag that is injected into the flesh to uniquely number and identify individuals. The tag can be read by radio waves from a few inches away. The highly controversial device is being marketed as a way to access secure areas, link to medical records, and serve as a payment instrument when associated with a credit card or pre-paid account.
CASPIAN: Consumers Against Supermarket Privacy Invasion and Numbering, was established in 1999 to oppose supermarket loyalty cards and other retail surveillance schemes