United States: Law Firm Data Breaches Demonstrate The Expanding Scope Of Cyber Attacks

Last Updated: January 20 2017
Article by Joseph Facciponti and Joseph V. Moreno

Most Read Contributor in United States, September 2017

In a case of "cyber meets securities fraud," the United States Attorney's Office for the Southern District of New York ("SDNY") recently indicted three foreign nationals on charges of insider trading, wire fraud, and computer hacking for allegedly trading on information they stole from the computer networks of two major New York law firms.1 A parallel enforcement action brought by the Securities and Exchange Commission – its first time bringing civil charges based on the hacking of a law firm's computer network – alleges insider trading and other violations of the Securities Exchange Act of 1934.2 The case is a wake-up call that hackers are becoming more creative both in their choice of victims and in how they use the information they steal, requiring companies to reconsider what type of data is prone to hacking and whether their security protocols are sufficient to detect and prevent it. It is also a reminder to certain federal and state regulated entities that they may soon have to comply with new cybersecurity rules requiring robust policies and procedures governing how confidential data and computer networks are handled and protected.

Hacking Schemes Are Becoming More Creative

The criminal defendants – Iat Hong, Bo Zheng, and Chin Hung – live in Macau and mainland China and are alleged to have attacked the computer networks of multiple law firms to identify and steal confidential client information. In each case in which they were successful, it is believed the defendants used a combination of malware and stolen login credentials to gain access to the firms' networks. Using that access, the defendants allegedly stole emails containing information about potential client merger and acquisition activity, and then traded in the securities of those companies, earning over $3 million in illicit profits.3

Another recent case further illustrates this trend. In late 2015, prosecutors in the SDNY charged three individuals with engaging in multiple computer-based crimes, including a massive scheme to steal over 100 million customer records from several financial institutions.4 In that case, the defendants did not steal customer records to simply withdraw money from the customers' bank accounts or run up charges on their credit cards. Instead, they allegedly used the stolen customer information – including email addresses and telephone numbers – to market securities to the customers as part of a sophisticated pump-and-dump securities fraud scheme. As the United States Attorney for the SDNY stated when the charges were announced, "[t]he charged crimes showcase a brave new world of hacking for profit. It is no longer hacking merely for a quick payout, but hacking to support a diversified criminal conglomerate."

Anyone Can Be a Target

These cases demonstrate the ever-expanding scope of cybercrime, both in terms of the victims whose computer networks are targeted and the methods by which hackers exploit the information they steal.

With respect to potential victims, these cases show that hackers are thinking creatively about where they might find valuable confidential information – whether that information is a proposed merger or a business's trade secrets – and are looking both to corporations and their third party vendors as potential targets. Certain vendors, such as payment processors, professional services firms, and medical billing companies, are tempting targets because they often retain valuable individual and company information. Even vendors that do not retain confidential customer information may be indirect targets for hackers. For example, if a vendor has privileged access to a client's internal network, hackers could effectively use that access as a "back door" to compromise the clients' systems.5

Regulators are aware of the potential cybersecurity risks presented by third party vendors and are starting to implement new rules to address them. For example, in October 2016, three federal banking regulators – the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation – announced potential new cybersecurity standards for large financial institutions.6 Among other things, the rules would require the adoption of robust compliance programs to evaluate and manage the cybersecurity risks posed by "external dependencies" such as third party vendors. Similarly, the New York Department of Financial Services ("DFS") recently issued new cybersecurity rules that require regulated banks, insurance companies, and other financial institutions to adopt written policies and procedures designed to ensure the security of confidential information held by third party vendors.7 Among other things, the DFS rules require regulated institutions to evaluate the risks posed by their third party vendors, conduct due diligence on vendors' cybersecurity programs, and mandate minimum cybersecurity practices to be adopted by the vendors. The new DFS rules go into effect on March 1, 2017.8


As more confidential information is stored electronically and as more business activity is transacted exclusively on the Internet, economically motivated cybercriminals will find new targets for hacking and creative ways to steal valuable data and defraud individuals, corporations, and the public. These recent prosecutions are departures from typical schemes in which cybercriminals use stolen information to make a quick profit through straightforward identity theft or credit card fraud. Instead, they reflect a trend of increasingly sophisticated hackers who are thinking carefully about both the types of data that are available for theft and the means by which that data could be exploited to maximize its profit-generating potential. These cases are a reminder that anyone in possession of sensitive customer or company data should remain vigilant and take reasonable and appropriate steps to protect their systems from attack.


1.   See Indictment, United States v. Iat Hong, et al., S1 16 Cr. 360 (Oct. 13, 2016), available at https://www.justice.gov/usao-sdny/press-release/file/921006/download.

2.  See Complaint, SEC v. Iat Hong, et al., 16 Civ. 9947 (Dec. 27, 2016), available at https://www.sec.gov/litigation/complaints/2016/comp-pr2016-280.pdf.

3.   Further demonstrating how hacking groups are increasingly targeting a wide array of victims for a variety of different purposes, the Indictment alleges that the defendants also hacked into the networks of robotics technology companies in the United States and Taiwan to steal confidential technological data.

4.   See Press Release, "Attorney General and Manhattan U.S. Attorney Announce Charges Stemming from Massive Network Intrusions at U.S. Financial Institutions, U.S. Brokerage Firms, Major News Publications and Other Companies" (Nov. 10, 2015), available at https://www.justice.gov/opa/pr/attorney-general-and-manhattan-us-attorney-announce-charges-stemming-massive-network.

5.   It is reported that the hackers responsible for a 2013 data breach of a major retailer, which resulted in the theft of millions of customer credit and debit card records, gained access to the network by first compromising the system of a third party vendor that provided heating and air-conditioning services to the retailer's stores. See "Heat Systems Called Door to Target for Hackers," The New York Times (Feb. 4, 2014), available at https://www.nytimes.com/2014/02/06/technology/heat-system-called-door-to-target-for-hackers.html?_r=0.  

6.   See Joint Press Release, "Agencies Issue Advanced Notice of Proposed Rulemaking on Enhanced Cyber Risk Management Standards" (Oct. 19, 2016), available at https://www.federalreserve.gov/newsevents/press/bcreg/20161019a.htm.

7.  See Press Release, "DFS Issues Updated Proposed Cybersecurity Regulation Protecting Consumers and Financial Institutions" (Dec. 28, 2016), available at http://www.dfs.ny.gov/about/press/pr1612281.htm. The updated rules are subject to a 30-day notice and comment period, and may therefore be revised before they go into effect.

8.   See Cadwalader Clients & Friends Memo, "New York State Revises 'First-In-Nation' Cybersecurity Rules" (Jan. 10, 2017), available at http://www.cadwalader.com/resources/clients-friends-memos/new-york-state-revises-first-in-nation-cybersecurity-rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.