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Text messages and other non-email, electronic communications have become increasingly important in securities fraud matters. These communications are often sent from personal mobile devices and often provide key evidence.  It has become clear that the most interesting, and sometimes most problematic, communications often do not take place via email.Continue Reading Text Messages Lead to $4.47B Liability in Securities Fraud Case

The U.S. Securities and Exchange Commission (“SEC”) adopted a final rule on July 26, 2023 that requires public companies to disclose material cybersecurity incidents under new Item 1.05 of Form 8-K. Since its adoption, public companies have faced practical challenges in determining whether and when a cybersecurity incident warrants disclosure under Item 1.05.

On May 21, 2024, roughly six months after the final rule’s effective date, Erik Gerding, Director of the SEC’s Division of Corporation Finance, issued a statement signaling that public companies should consider disclosing incidents in a different fashion under a Form 8-K.  Specific points of note:Continue Reading SEC “Encourages” Public Companies to Disclose “Immaterial” Cybersecurity Incidents Under Item 8.01 of Form 8-K

Public companies now have a pathway to request a delay in their cybersecurity incident disclosure to the U.S. Securities and Exchange Commission (“SEC”). On December 6, 2023, the Federal Bureau of Investigation (“FBI”) Cyber Division published the “Cyber Victim Requests to Delay Securities and Exchange Commission Public Disclosure Policy Notice” (the “Policy Notice”) in response to the SEC’s finalized disclosure rules (the “Final Rules”). Published on July 26, 2023, the Final Rules established guidelines around cybersecurity risk management, strategy, governance, and incidents for public companies subject to the Securities Exchange Act of 1934. Among several requirements under the Final Rules, companies are required to disclose cybersecurity incidents within four days of a materiality determination by filing an SEC Form 8-K.Continue Reading FBI Offers Pathway to Request Delay of SEC Cybersecurity Incident Disclosures

On October 30, 2023, the Securities and Exchange Commission (the “SEC”) filed a civil lawsuit charging SolarWinds Corporation (“SolarWinds” or the “Company”) and its chief information security officer, Timothy G. Brown (“Brown”), with securities fraud, internal controls failures, misleading investors about cyber risk, and disclosure controls failures, among other violations.  The SEC’s claims arise from allegedly known cybersecurity risks and vulnerabilities at SolarWinds associated with the SUNBURST cyberattack that occurred between 2018 and 2021.Continue Reading Uncharted Territory: The SEC Sues SolarWinds and its CISO for Securities Laws Violations in Connection with SUNBURST Cyberattack

On July 26, 2023, the SEC finalized long-awaited disclosure rules (the “Final Rules”) regarding cybersecurity risk management, strategy, governance, and incidents by public companies that are subject to the reporting requirements of the Securities Exchange Act of 1934.  While the end results are substantially similar to rules proposed by the SEC in March 2022, there are some key distinctions. Continue Reading Five Key Takeaways from the SEC’s Final Cybersecurity Rules for Public Companies

Concluding its investigation into the internal accounting controls of nine public issuers who were recent cyber fraud victims, the Securities and Exchange Commission (“SEC”), Division of Enforcement explicitly reminded issuers to consider cyber-related threats in developing and deploying their Section 13(b)(2)(B) internal accounting controls.

The SEC emphasized the importance of tailoring internal accounting controls to cyber-related threats, noting that cyber frauds like those carried out in the nine cases it investigated have caused “over $5 billion in losses since 2013, with an additional $675 million in adjusted losses in 2017.”
Continue Reading SEC Encourages Internal Accounting Controls to Guard Against Cyber Fraud

On February 21, 2018, the U.S. Securities and Exchange Commission (“SEC”) voted unanimously to disseminate its Statement and Guidance on Public Company Cybersecurity Disclosures, an “interpretive guidance” designed to help publicly-traded companies satisfy their cybersecurity risk disclosure obligations. The new guidance supplements the SEC’s initial October 13, 2011 Cybersecurity Disclosure Guidance, which was relatively broad, by: 1) articulating the SEC’s expectations regarding the adequacy of disclosures; and, for the first time, 2) recommending the implementation of policies and procedures that address disclosure controls as well as insider trading. 
Continue Reading U.S. Securities and Exchange Commission Ups the Ante for Addressing Corporate Cyber Risks