Data Breach

By Ciarra Chavarria

On June 8, 2016, the Securities and Exchange Commission announced that Morgan Stanley Smith Barney LLC (“Morgan Stanley”) had agreed to pay $1 million as a penalty for charges relating to its “failures to protect customer information.”

Morgan Stanley’s settlement with the SEC came several months after a federal court found one of Morgan Stanley’s former financial advisers, Galen Marsh, guilty of illegally uploading confidential information from approximately 730,000 of Morgan Stanley’s clients to his personal computer. Marsh’s server was later hacked by third parties and confidential information of at least 900 clients appeared online for sale.  Marsh was sentenced to thirty-six months of probation and a $600,000 fine.
Continue Reading Morgan Stanley to Pay $1 Million Penalty in SEC Cybersecurity Settlement

The EU Network and Information Security (NIS) Directive now looks likely to enter into force in August of this year.  Member States will then have 21 months to implement it into national law before the new security and incident notification obligations will start to apply to the following entities:

  • designated* “operators of essential services” within the energy, transport, banking, financial market infrastructures, health, drinking water supply and distribution, and digital infrastructure sectors; and
  • certain “digital service providers” that offer services within the EU, namely online market places, online search engines and cloud computing services, excluding small/micro enterprises.

* Once implemented in national law, Member States will have a further 6 months to apply criteria laid down in the Directive to identify specific operators of essential services covered by national rules; they do not need to undertake this exercise in relation to digital service providers, which shall be deemed to be under the jurisdiction of the Member State in which it has its “main establishment” (i.e., its head office in the Union).
Continue Reading EU Cyber Security Directive To Enter Into Force In August

Verizon recently released its 2016 Data Breach Investigations Report (“DBIR”) that outlines cybersecurity threats, vulnerabilities, and trends from 2015.  Verizon, with the assistance of more than 60 contributors, analyzed over 64,000 information security incidents (security events that affect the integrity of an information system) and 2,200 data breaches (incidents that result in the “confirmed disclosure of data to an unauthorized party”) affecting organizations in 82 countries. Items of particular interest in this year’s report include among others:  (1) an analysis of attacks by industry; (2) an increase in breach discovery time; and (3) a list of the most prevalent attacks or types of threats.  A brief description of each of these items follows.
Continue Reading Verizon Releases 2016 Data Breach Investigations Report

Last week, the Seventh Circuit handed down another friendly ruling for data breach class action plaintiffs, reversing a district court’s dismissal of a class action complaint over a 2014 data breach at P.F. Chang’s restaurants.  In reversing the district court’s holding that the plaintiffs had not demonstrated Article III standing, the Seventh Circuit ruled that the risk of future fraudulent charges and identity theft created by the breach as reported by P.F. Chang’s constituted a “certainly impending” future injury sufficient to confer Article III standing.  This decision builds on an earlier ruling from the Seventh Circuit that revived a data breach suit filed against Neiman Marcus, and will create further incentives for future plaintiffs to file data breach class action lawsuits in the federal courts of Illinois, Indiana, and Wisconsin, when jurisdictionally possible.
Continue Reading Seventh Circuit, Relying on Defendant’s Post-Breach Statements, Allows Data Breach Class Action to Proceed

Last week, Tennessee Governor Bill Haslam (R) signed S.B. 2005 into law, amending Tennessee’s breach notification law to broaden the scope of information covered and require quicker notifications of the state’s residents.  Most notably, when the amendments enter into force on July 1, 2016, Tennessee will become the only U.S. state that could require notification of affected individuals following breaches of encrypted information.  The amendments will also require businesses to notify Tennessee residents within 45 days after the business discovers the breach.
Continue Reading Tennessee Amends Breach Notification Law to Cover Breaches of Encrypted Information

Following the announcement of the President’s Cybersecurity National Action Plan (CNAP), an initiative designed to “enhance cybersecurity capabilities within the Federal Government and across the country,” the White House has released a fact sheet outlining the different components of the CNAP.  The announcement of the CNAP follows the President’s request for $19 billion in funding for cybersecurity initiatives in fiscal year 2017, an increase of 35% over the previous year’s request.  The CNAP includes a mixture of near-term measures and long-term objectives, with the ultimate goal of enhancing the federal government’s cybersecurity posture while encouraging private citizens and businesses to do the same.  Some of the most significant aspects of the CNAP, discussed further below, include:

  • The launch of a cybersecurity awareness campaign to promote the use of multi-factor authentication;
  • A “systematic” review by the White House to identify areas where the federal government can reduce the use of Social Security Numbers as individual identifiers;
  • Plans for the development of a Cybersecurity Assurance Program to test and certify connected devices against certain security standards;
  • The creation of a Chief Information Security Officer (CISO) position within the federal government, coupled with a $3.1 billion initiative to modernize federal agencies’ IT systems and applications;
  • The establishment of a commission of private sector cybersecurity experts to offer recommendations on cybersecurity initiatives; and
  • The establishment of a Federal Privacy Council, composed of representatives from various key federal agencies, to coordinate guidelines for the federal government’s collection and storage of data.

Continue Reading White House’s Cybersecurity National Action Plan (CNAP) Includes Cybersecurity Awareness Campaign, Creation of Federal Privacy Council

A federal judge in the Northern District of Illinois has denied Neiman Marcus Group LLC’s (“Neiman”) motion to dismiss a consumer class action lawsuit arising from a December 2013 data breach at the retailer that exposed about 350,000 credit cards.  As we previously reported, the plaintiffs sued Neiman alleging…
Continue Reading Judge Denies Neiman’s Motion to Dismiss Data Breach Class Action

On Tuesday, the FTC announced the agenda for PrivacyCon, which is being billed as a “first-of-its-kind event” that will facilitate discussions between researchers and academics about privacy and security.  The FTC also released abstracts for the research that will be presented at the conference, scheduled for January 14.  PrivacyCon follows a call from the FTC last summer to “white hat” researchers and academics for papers on new vulnerabilities and how they might be exploited to harm consumers, as well as research in the area of big data, the Internet of things and consumer attitudes towards privacy.
Continue Reading FTC Releases Agenda for First-Ever PrivacyCon

Wyndham Hotels and Resorts has agreed to settle the FTC’s charges that its corporate data security practices were deficient under the unfairness prong of Section 5 of the FTC Act.  Assuming the district court approves the proposed stipulated consent order, this concludes the litigation between Wyndham and the FTC.  Under…
Continue Reading Wyndham Settles FTC Charges

Last Wednesday, the FTC took the next step in its ongoing Section 5 enforcement proceedings against LabMD, filing a formal notice seeking an appeal of Administrative Law Judge Chappell’s initial decision before the full Commission.  Judge Chappell’s initial decision, announced on November 13, dismissed the FTC’s complaint against LabMD,…
Continue Reading FTC Appeals Dismissal of Data Security Complaint Against LabMD