SEC imposes $35m fine over Yahoo data breach

SEC imposes $35m fine over Yahoo data breach

Altaba, formerly known as Yahoo, has settled with the Securities and Exchange Commission (SEC) on claims that it misled investors about a 2014 data breach which affected more than 500 million user accounts, and agreed to pay out $35 million. According to the SEC’s order, within days of the December 2014 intrusion, Yahoo’s information security team learned that Russian hackers had stolen private information that included usernames, email addresses, phone numbers, birthdates, encrypted passwords, security questions and answers for over 500 million user accounts.  Although information relating to the breach was reported to members of Yahoo’s senior management and legal department, Yahoo failed to properly investigate the circumstances of the breach and to adequately consider whether the breach needed to be disclosed to investors.  The fact of the breach was not disclosed to the investing public until more than two years later, when in 2016 Yahoo was in the process of closing the acquisition of its operating business by Verizon Communications, Inc.

The SEC’s order finds that when Yahoo filed several quarterly and annual reports during the two-year period following the breach, the company failed to disclose the breach or its potential business impact and legal implications. Instead, the company’s SEC filings stated that it faced only the risk of, and negative effects that might flow from, data breaches.  In addition, the SEC’s order found that Yahoo did not share information regarding the breach with its auditors or outside counsel in order to assess the company’s disclosure obligations in its public filings. Finally, the SEC’s order finds that Yahoo failed to maintain disclosure controls and procedures designed to ensure that reports from Yahoo’s information security team concerning cyber breaches, or the risk of such breaches, were properly and timely assessed for potential disclosure.

Jina Choi, Director of the SEC’s San Francisco Regional Office, added, “Yahoo’s failure to have controls and procedures in place to assess its cyber-disclosure obligations ended up leaving its investors totally in the dark about a massive data breach.  Public companies should have controls and procedures in place to properly evaluate cyber incidents and disclose material information to investors.” The Securities and Exchange Commission’s case marks the first time it has ever gone after a company for failing to disclose a cyber security breach.

In November 2017, a 22-year-old Canadian man named Karim Baratov pleaded guilty to one count of conspiracy to commit computer fraud and abuse and eight counts of aggravated identity theft. Earlier in 2017, the Justice Department also indicted two Russian spies and two cybercriminals for the breach.

The breach was separate from a 2013 hack that compromised every single Yahoo account — all 3 billion of them, including email, Tumblr, Yahoo Fantasy and Flickr. The number was more than three times the amount Yahoo originally reported.

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