United States: $35 Million Yahoo Fine Reflects SEC's Heightened Cybersecurity Focus

On April 24, 2018, the Securities and Exchange Commission ("SEC") announced the settlement of its first-ever enforcement action against a company for an alleged failure to disclose a cybersecurity breach. Altaba Inc., the company formerly known as Yahoo! Inc. ("Yahoo"), agreed to pay $35 million to settle charges that it misled investors by not disclosing one of the world's largest data breaches involving hundreds of millions of user accounts. This settlement underscores the agency's increasing focus on cybersecurity and the importance it places on disclosures about cyber incidents.

In December 2014, hackers allegedly stole what Yahoo called its "crown jewels" – user names, email addresses, phone numbers, birthdates, hashed passwords, and security questions and answers – for more than 500 million accounts. It was the "largest known theft of user data" at the time, according to the SEC's order. Within days, Yahoo's information security team allegedly became aware of the intrusion and informed Yahoo's senior management and internal legal teams.

Yahoo did not publicly disclose the breach until two years later. The SEC claims that Yahoo "materially misled" investors throughout this period by stating that the company faced a risk of potential data breaches without mentioning that a massive data breach had already occurred and by omitting known effects of the breach in its management discussion and analysis ("MD&A"). According to the SEC, Yahoo did not share the existence of the breach with its auditors or outside counsel. Further, the SEC alleges that Yahoo had falsely represented that it had no data breaches in its stock purchase agreement with Verizon Communications Inc. (which Yahoo publicly filed as an Exhibit to its Current Report on Form 8-K).1 When Yahoo ultimately disclosed the breach in September 2016, its market capitalization fell by almost $1.3 billion, and Verizon renegotiated the stock purchase agreement to reduce the purchase price for Yahoo's operating business by 7.25 percent.

The SEC alleges that Yahoo's failure to disclose the breach violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, and that Yahoo's disclosure failure and failure to maintain disclosure controls and procedures violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 13a-15. In addition to the $35 million fine, the settlement agreement requires Yahoo to cease and desist from committing any further violations of these laws. The SEC has stated that its investigation is still continuing, and thus it is possible there could be actions against company representatives in their individual capacities. Yahoo also faces an $80 million settlement payment to end a shareholder suit based on similar allegations, which is pending court approval.

The SEC's settlement order comes on the heels of its February 21, 2018 Commission Statement and Guidance on Public Company Cybersecurity Disclosures, which emphasized the SEC's view that companies are obligated to disclose material cybersecurity risks and incidents. The 2018 guidance recognized that "a company may require time to discern the implications of a cybersecurity incident" but warned that "an ongoing internal or external investigation – which often can be lengthy – would not on its own provide a basis for avoiding disclosures of a material cybersecurity incident." The 2018 guidance also encouraged companies to adopt disclosure controls and procedures related to cybersecurity incidents, and to assess their compliance regularly. The 2018 guidance expanded upon 2011 guidance issued by the staff of the Division of Corporation Finance.

The SEC's heightened focus on public company cybersecurity disclosures reflects its increasing activity in the cybersecurity realm. In a Statement on Cybersecurity issued September 20, 2017, SEC Chairman Jay Clayton promised the agency would "prioritize its efforts to promote effective cybersecurity practices." Five days later, the Division of Enforcement launched a Cyber Unit to target cyber misconduct, including the failure of public companies to disclose cyber risks and incidents, and the failure of registered entities to appropriately safeguard information. The SEC has repeatedly brought actions against registered entities for allegedly failing to implement reasonable data security policies and procedures. And year after year, the SEC's Office of Compliance Inspections and Examinations has named cybersecurity one of its five examination priorities.

In short, it does not appear that the SEC is losing interest in the "cyber threat" – the "greatest threat to our markets right now," according to Division of Enforcement co-director Steven Peikin. While the scope of the SEC's enforcement authority in this space has not yet been tested, these developments do highlight steps that companies can take to mitigate the risk of becoming the target of an SEC investigation in the first place. In particular, the Yahoo settlement highlighted that companies can reduce exposure to SEC cybersecurity enforcement by evaluating and, where appropriate, enhancing their disclosure controls and procedures related to cybersecurity risks and incidents. Ropes & Gray has previously outlined important considerations for cybersecurity disclosures in an Alert available here.

In finding that the representations included in the agreement with Verizon constituted public disclosure of the absence of a cyber breach, the order is a reminder that the SEC continues to take the position it did in the 2005 Titan 21(a) report that statements made in agreements that are filed with the Commission are not private contractual matters but constitute disclosures upon which investors may rely.2


1 It is unclear whether schedules to the agreement disclosed any data breaches, but the schedules were not filed in connection with the Form 8-K.

2 Note that the SEC's finding comes despite the inclusion by Yahoo of so-called "Titan disclaimers" in Yahoo's Form 8-K, which stated, among other things, the transaction agreements that were attached as exhibits to the Form 8-K were intended to provide stockholders with information regarding their terms, but were not intended to provide any other factual information about Yahoo, and that stockholders should not rely on the representations, warranties and covenants contained in the transaction agreements as characterizations of the actual state of facts or condition of Yahoo or Verizon.

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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions