Bloomberg says its reporters had limited access to look at what customers… (Jason Alden, Bloomberg )
Officials at Bloomberg, the New York financial news and information service, scrambled to deal with an unfolding customer privacy scandal after admitting its journalists had snooped on business clients for years through its network of terminals ubiquitous on Wall Street.
Seeking to calm Bloomberg's 315,000 subscribers worldwide, the editor in chief of Bloomberg News said Monday: "Our reporters should not have access to any data considered proprietary."
"Last month, we immediately changed our policy so that reporters now have no greater access to information than our customers," Matthew Winkler said in a post on Bloomberg's website. He called the practice "inexcusable."
The revelations, which came out last week, spotlighted the profitable niche that the company, founded by New York Mayor Michael Bloomberg, has carved for itself by leasing terminals for as much as $20,000 a year.
More important, it raised questions about potential conflicts with its news-gathering arm, Bloomberg News.
"It's a big deal for clients because information is everything on Wall Street," said Michael Santoro, a business ethics professor at Rutgers University. He deemed it "a major breach of customer trust."
David Neuhauser, a managing partner at investment firm Livermore Partners near Chicago, said the financial community is dependent on Bloomberg terminals, their instant access to stock market and Wall Street news and the enormous amount of financial data and analysis they provide.
"It's extremely important that they not abuse the privilege because they have access to so much information," he said.
Neuhauser compared Bloomberg with a doctor who is privy to private information.
"You don't expect a doctor to tell the world," he said. "There's definitely a bit of a conflict here."
The privacy breach became public seemingly through happenstance. In April, investment bank Goldman Sachs complained that a Bloomberg reporter had questioned a partner's employment status after noting the person had not logged on to his or her terminal for some time.
The company confirmed last week that its reporters had limited access to look at what customers were doing on its terminals, including when clients logged on, how often they messaged and which broad categories they looked up.
Not surprisingly, this revelation of a years-long privacy breach sent clients and regulators into a tizzy.
The U.S. Federal Reserve and the European Central Bank said they were in touch with Bloomberg to find out whether they might have been affected and whether any vital information was tapped into. The Treasury Department is also reportedly looking into the issue.
By the end of last week and Monday, Bloomberg was in damage-control mode to protect its lucrative terminal business, which some experts estimate rakes in roughly $6 billion a year.
Last Friday, Bloomberg Chief Executive Daniel L. Doctoroff said, "Although we have long made limited customer relationship data available to our journalists, we realize this was a mistake."
Experts say it is unlikely that many companies, no matter how outraged, will switch over to competitors such as FactSet, Thomson Reuters or Standard & Poor's Capital IQ.
Bloomberg has such a firm grip on the financial data industry, with terminals nearly as much a mainstay on Wall Street as microwave ovens in kitchens, that retraining employees on another system would require substantial time and investment.
Michael Bloomberg founded the company in 1982 after he was fired from Wall Street firm Salomon Bros. His idea was to harness emerging computer technology to bring up-to-date financial data to Wall Street traders so they could more efficiently buy and sell on the best information.
Within a decade, Bloomberg's eponymous firm had more than 10,000 customers. And along the way, Bloomberg's news operation has become a formidable force. Even as newsrooms have been shedding staff, Bloomberg has more than 2,400 journalists in 72 countries.
"Bloomberg has an incredibly powerful position in business; you can see by the huge fees they charge for their terminals," said Larry Harris, a USC professor and the former chief economist at the Securities and Exchange Commission. "It's a difficult business to compete against" an entrenched company like Bloomberg.
Harris pointed out that data vendors used to give terminals to colleges almost for free in the hopes of molding students to demand their system when they entered the workforce.
"Bloomberg doesn't do that anymore because they know they don't have to," he said.
This highly public incident will probably spur the company to go to extreme lengths to ensure there's no repeat, experts said.
"Conflict issues need to be managed," Santoro, the Rutgers professor, said. "It's very clear that Bloomberg did not give enough attention to conflicts."
For now, clients such as Neuhauser are staying put with Bloomberg. "They are such a dominant source of information that it would be hard for people to change," he said. "I think if there were future abuses that could happen."