Cyber Liability

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David Bergenfeld
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Laura Lang

This past year was a very eventful one in the world of fidelity bond, commercial crime, and cybercrime coverages. In the following guest post, David Bergenfeld of the D’Amato & Lynch law firm’s Fidelity Bond Practice Group, and Laura Lang, Esq., take a look at the important developments during 2015 regarding these coverages. I would like to thank David and Laura for their willingness to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors of topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is David and Laura’s guest post.
Continue Reading Guest Post: Fidelity Bonds and Cybercrime Policies: 2015 Year in Review

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John Reed Stark
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David Fontaine

In this day and age, the members of the boards of directors of most companies understand that cybersecurity issues are both important and should be a board-level priority. But while these issues and responsibilities are now well-recognized, many boards still struggle to translate these issues into action. In the following guest post from John Reed Stark, President, John Reed Stark Consulting LLC, and David R. Fontaine, President, Corporate Risk Holdings[1] take a look at these challenges and propose that in addressing their cybersecurity-related responsibilities boards should draw upon the same governance procedures they have longed used for with respect to financial accounting and reporting. The authors suggest well-advised boards will take this approach in light of the very real, difficult to control and ever increasing enterprise threat that cyber-attack represent for their organizations.
Continue Reading Guest Post: Boards of Directors and Cybersecurity: Applying Lessons Learned From 70 Years of Financial Reporting Oversight

capitoldomeIt is not news that cybersecurity is a serious corporate and domestic security concern. But despite continuing revelations of high-profile data breaches, cybersecurity is an area (OK, one of the many areas) where Congress has been slow to act. While there is still as yet no comprehensive Congressional attempt to tackle cybersecurity as an issue and as a phenomenon, two U.S. senators have now introduced a bipartisan bill that would require publicly traded companies to disclose the cybersecurity expertise or experience that is represented on its board of directors or to disclose what other steps the company has taken to identify or evaluate nominees for this board level cybersecurity position.
Continue Reading Senate Bill Would Require Disclosure Concerning Corporate Boards’ Cybersecurity Expertise

wyndham worldwideAccording to the company’s December 9, 2015 press release (here), Wyndham Worldwide has reached a settlement with the Federal Trade Commission in the long-running and high-profile civil action the agency filed against the company and its affiliates in connection with data breaches at the company during the period 2008-2010. Under the terms of the settlement, the company has agreed to undertake certain measures and to continue to meet certain standards with respect to its customers’ payment card information.  As the company said in its press release about the settlement, the company’s undertakings in the settlement set “a standard for what the government considers reasonable data security of payment card information.” The FTC’s December 9, 2015 press release about the settlement can be found here. The parties’ stipulated order for injunction, which is subject to court approval, can be found here.
Continue Reading Wyndham Worldwide Settles Data Breach-Related FTC Enforcement Action

ftcFollowing the Third Circuit’s August 2015 decision in which the appellate court affirmed the Federal Trade Commission’s authority to pursue an enforcement action against Wyndham Worldwide alleging that the company failed to make reasonable efforts to protect consumers’ private information, there have been concerns that other companies experiencing data breaches could be the target of enforcement actions by the FTC and other regulatory agencies. However, a recent decision by the FTC’s Chief Administrative Law Judge has set a high bar for the degree and kind of consumer harm that must be shown in order for the FTC to be able to pursue a data breach-related claim under Section 5 of the FTC Act.

In a 92-page November 13, 2015 opinion (here), FTC Chief Administrative Law Judge D. Michael Chappell dismissed the FTC’s complaint against LabMD, Inc., based on his holding that the FTC had failed to meet its burden to show that the company’s data security practices has caused or were likely to cause harm to consumers. As discussed below, the agency intends to appeal the ALJ’s ruling, but as it stands the ruling could provide companies that are the target of an FTC data breach-related enforcement action a basis upon which to try to challenge the sufficiency of the FTC’s allegations.
Continue Reading FTC Data Breach-Related Enforcement Action Dismissed Based on Lack of Alleged Consumer Harm

paul-cyber-book-250x324We are long past the point where cybersecurity can be treated like an emerging, obscure or peripheral issue. The fact is that cybersecurity is now an important concern for every organization and enterprise. For that reason, cybersecurity is also now an important concern for everyone responsible for protecting and guiding those organizations and enterprises, including in particular corporate directors and officers. In the current environment, there is no shortage of advice available for these corporate officials as they seek to understand and fulfill their responsibilities to their organizations. Indeed the sheer volume of information available can be confusing or even overwhelming. Fortunately, there is now a single volume guide available to help corporate directors address their organization’s cybersecurity exposures and needs. The new book by Paul Ferrillo of the Weil Gotshal law firm entitled “Navigating the Cybersecurity Storm: A Guide for Directors and Officers” (here) is a readable, well-organized, and helpful guide for any corporate official seeking to address their cybersecurity responsibilities.
Continue Reading Book Review: A Cybersecurity Guide for Corporate Directors and Officers

weilOn September 22, 2015, in what has been described as the SEC’s first cybersecurity-related enforcement action, the SEC announced that it had entered a settlement St. Louis-based investment advisor R.T. Jones Capital Equities Management, Inc., based on charges that the company had failed to establish the required cybersecurity policies and procedures in advance of a breach that compromised the personally identifiable information (PII) of approximately 100,000 individuals, including thousands of the firm’s clients.  A copy of the SEC’s order related to the settlement can be found here.

In the following guest post, David Wohl and Paul Ferrillo of the Weil Gotshal law firm take a look at the SEC’s settlement with R.T. Jones and examine the implications of the settlement, and of the recent guidance from SEC’s Office of Investor Education and Advocacy, for future regulatory action, from the SEC and other agencies. A version of the guest post previously was published as a Weil client alert.

I would like to thank David and Paul for their willingness to publish their article on this blog. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is David and Paul’s guest post.

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Just days after the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued its second round of cybersecurity guidance for its upcoming examinations of registered investment advisers and broker-dealers,[i] the SEC settled an administrative proceeding on cybersecurity issues arising out of a breach at a registered investment adviser, R.T. Jones Capital Equities Management, Inc.  (“R.T. Jones”).[ii]  As a result of the settlement, R.T. Jones was censured and fined $75,000.  On the heels of the recent OCIE guidance and following a year of major cybersecurity breaches (especially at financial institutions),[iii] this proceeding is instructive on a number of points, especially on the question “What happens when you don’t adopt policies and procedures to safeguard client data?”
Continue Reading Guest Post: SEC’s Regulatory Action Against R.T. Jones: Did the Other Cybersecurity Shoe Just Drop?

cyber risksWe live in a world in which rapidly shifting technologies and communications modalities have changed the way we interact and conduct business. These new media and means of interaction have introduced innumerable benefits and efficiencies. Unfortunately, these new alternatives have down sides; among other things, they mean new risks and even liability exposures for both individuals and companies that use them. We are all well aware of what can happen to a company that experiences a major data breach. But the new technologies and communications approaches also introduce a host of other potential business liability risks and exposures.

In the new 2015 edition of their interesting and readable book Cyber Risks, Social Media and Insurance: A Guide to Risk Assessment and Management (here), Carrie Cope, Dirk E. Ehlers and Keith W. Mandell take a comprehensive look at the new technologies and communications approaches, review the changed liability environment that these new alternatives present, analyze the current state of the insurance marketplace for these various exposures, and make some projections about what may lie ahead.
Continue Reading Book Review: Cyber Risks, Social Media and Insurance

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John E. Clabby
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Joseph W. Swanson

As I noted in a September 9, 2015 post (here), a Home Depot shareholder has filed a data breach-related derivative lawsuit against certain of the company’s directors and officers, in which the plaintiff contends that the defendants breached their fiduciary duties by failing to ensure that customer credit card information was secure and protected. A copy of the complaint can be found here.

In the following guest post, John E. Clabby and Joseph W. Swanson of the Carlton Fields Jorden Burt law firm take a look at the Home Depot data breach D&O lawsuit and provide their views on what the lawsuit may foreshadow for future D&O litigation. Jack and Joe also  review what they think are the lessons for corporate boards and managers from the lawsuit’s allegations, as well as the implications of the lawsuit for companies that experience a data breach in the future.

I would like to thank Jack and Joe for their willingness to publish their guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to readers of this blog. Please contact me directly if you would like to submit a guest post. Here is Jack and Joe’s guest post.

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Ending months of speculation, a shareholder has finally filed a derivative lawsuit against the directors and management of The Home Depot, Inc., in connection with the massive data breach the company suffered in 2014. The complaint, which alleges breach of fiduciary duty and corporate waste, fits the emerging template of shareholder derivative lawsuits after breaches at public companies. As such, it is worth a closer analysis for those whose jobs include protection of public companies and their boards from and during data breaches, both directly through more robust cybersecurity measures and indirectly through director and officer insurance and cyber-risk policies.
Continue Reading Guest Post: Preparing for a Cyber Caremark Lawsuit: Lessons from the Home Depot Derivative Complaint