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New Cybersecurity Disclosure Guidance for Public Companies: Focusing Attention, Raising Questions

As regular Cyberinquirer readers know, on October 12, 2011, the SEC’s Division of Corporate Finance published “suggested” Guidance on public companies’ disclosures of their cyber risks and exposures. I published a personal perspective on the implications of the Guidance in an October 29, 2011 post (here). Since then, our friend John Doernberg of William Gallagher Associates in Boston has written an excellent, thoughtful article which adopts a more technical approach. As many of you may know, John is a Vice President at William Gallagher and focuses on privacy, information security and risk management issues. Before becoming an insurance broker in 1995, John practiced law at leading firms in New York and Boston. The following article first appeared at John’s own site, http://blog.wgains.com/?s=Doernberg, and is being republished here with his permission. Thanks John!

Rick Bortnick

Increased corporate reliance on computer networks and electronic data has brought a corresponding increase in risks associated with breaches of their security. Such breaches have become more frequent and severe. With these Guidelines, the Division has indicated that public companies and their advisors should focus greater attention on how disclosure obligations under the federal securities laws may be affected by the potential financial and operational impact of cybersecurity breaches.

The Guidelines note that cybersecurity breaches (generically referred to as cyber incidents) can be malicious (cyber-attacks) or unintentional. The Guidelines provide something of a rogue’s gallery of cyber malice: the gaining of unauthorized access to steal or corrupt sensitive data or to disrupt operations, denial of service attacks, sophisticated electronic circumvention of network security, and social engineering techniques such as phishing to extract passwords or other information that will enable the gaining of access.

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