cybersecurity & computer fraud - the convergence

www.solidcounsel.com

The Convergenc

e!

Cybersecurity & Computer

Fraud

“There are only two types of companies: those that have been hacked, and those that will

be.” –Robert Mueller

43% Business had Data Breach in 2014

62% of Cyber Attacks SMBs

TargetHome DepotNeiman MarcusMichael’sSpecsTJ MaxxeBaySally BeautyPF Chang’sUPSDairy QueenJimmy John’sJP Morgan ChaseKmartStaplesSonyAshley Madison

Yes, Legal


Computer Fraud & CybersecurityWhat is fraud?Fraud 2.0Intersection between computer fraud & cybersecurity / data breach

The irony of all of this …


Malicious

• compete• newco• sabotage• disloyal insider

Negligence• email• usb• passwords

Blended

• foot out the door• misuse of network• stealing data• negligence with data• violate use policies

Hacking / Cracking

Social Engineer

Malware

StealingPlanting

Corrupting

Outsider & Insider Threats


DataSources

Company Data

Workforce Data

Customer / Client Data

Other Parties’

Data

3rd Party Business

Associates’ Data

Outsiders’ Data


Threat Vectors

Network

Website

Email

BYOD

USBGSM

Internet Surfing

Bus. Assoc.

People


Legal Obligations International

Laws Safe Harbor Privacy Shield

Federal Laws & Regs

HIPAA, GLBA, FERPA

FTC, FCC, SEC State Laws

47 states (Ala, NM, SD)

Fla (w/in 30 days) OH & VT (45 days)

Industry Groups PCI, FINRA, etc.

Contracts Vendors & Suppliers Business Partners Data Security

Addendum


ACC Study (Sept ‘15)

What concerns keep Chief Legal Officers awake at night?

#2 = Data Breaches

82% consider as somewhat, very, or extremely important


Cost of a Data Breach – US2013 Cost

• $188.00 per record• $5.4 million = total average cost paid by organizations

2014 Cost• $201 per record• $5.9 million = total average cost paid by organizations

2015 Cost• $217 per record• $6.5 million = total average cost paid by organizations

(Ponemon Institute Cost of Data Breach Studies)


thinking about security …

tactics change … Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing.”

-Sun Tzu, The Art of War


Latest TrendsRansom WareEpidemic

Healthcare IndustryEvolving Threat


Latest Trends

Litigation


Consumer LitigationGot

Standing?

No

Yes

Peters v. St. Joseph Services, 74 F.Supp.3d 847 (S.D. Tex. Feb. 11, 2015)

Remijas v. Neiman Marcus Group, LLC, 794 F.3d 688, 693 (7th Cir. 2015)

Whalen v. Michael Stores Inc., 2015 WL 9462108 (E.D.N.Y. Dec. 28, 2015)

In re SuperValu, Inc., 2016 WL 81792 (D. Minn. Jan. 7, 2016)

In re Anthem Data Breach Litigation, 2016 WL 589760 (N.D. Cal. Feb. 14, 2016) (J. Lucy Koh)

Regulatory & Administrative


Regulatory & Administrative – SEC S.E.C. v. R.T. Jones Capital Equities Management, Consent Order (Sept. 22, 2015). “Firms must adopt written policies to protect

their clients’ private information” “they need to anticipate potential cybersecurity

events and have clear procedures in place rather than

waiting to react once a breach occurs.” violated this “safeguards rule 100,000 records (no reports of harm) $75,000 penalty


Regulatory & Administrative – FTC In re GMR Transcription Svcs, Inc., 2014 WL 4252393 (Aug. 14, 2014). FTC’s Order requires business to follow 3 steps when contracting with third party service providers:

1. Investigate before hiring data service providers.

2. Obligate their data service providers to adhere to the appropriate level of data security protections.

3. Verify that the data service providers are complying with obligations (contracts).


Regulatory & Administrative - FTCF.T.C. v. Wyndham Worldwide Corp., 799 F.3d 236 (3rd Cir. Aug. 24, 2015). The FTC has authority to regulate cybersecurity

under the unfairness prong of § 45(a) of the Federal Trade Commission Act.

Companies have fair notice that their specific cybersecurity practices could fall short of that provision. 3 breaches / 619,000 records / $10.6 million

in fraud Rudimentary practices v. 2007 guidebook Website Privacy Policy misrepresentations

Jurisdiction v. set standard?


Regulatory & Administrative FCC - fined AT&T $25,000,000 CFPB - fined Dwolla, Inc. $100,000 FDIC - new cybersecurity

framework DOJ - Yates Memo

Officer & Director Liability


Officer & Director Liability“[B]oards that choose to ignore, or minimize, the importance of cybersecurity oversight responsibility, do so at their own peril.” SEC Commissioner Luis A. Aguilar, June 10, 2014.

Heartland Payment Systems, TJ Maxx, Target, Home Depot, Wyndham

Derivative claims premised on the harm to the company from data breach.

Caremark Claims: Premised on lack of oversight = breach of the duty of loyalty

and good faith Cannot insulate the officers and directors = PERSONAL

LIABILITY! Standard:

(1) “utterly failed” to implement reporting system or controls; or

(2) “consciously failed” to monitor or oversee system.


Officer & Director LiabilityPalkon v. Holmes, 2014 WL 5341880, *5-6 (D. NJ Oct. 20, 2014). Derivative action for failing to ensure Wyndham

implemented adequate security policies and procedures. Order Dismissing: The board satisfied the business

judgement rule by staying reasonably informed of the cybersecurity risks and exercising appropriate oversight in the face of the known risks.

Well-documented history of diligence showed Board Discussed cybersecurity risks, company security policies

and proposed enhancements in 14 quarterly meetings; and

Implemented some of those cybersecurity measures.


Key Computer Fraud Laws Computer Fraud and Abuse Act

Fed Criminal Law – 18 USC § 1040 Inspired by War Games

Civil Claim (1994 Amend) Most important computer fraud /

cybersecurity law Texas: Computer Crimes


Protected Computer“If a device is ‘an electronic … or other high speed data processing device performing logical, arithmetic, or storage functions,’ it is a computer. This definition captures any device that makes use of an electronic data processor, examples of which are legion.”

United States v. Kramer, 631 F.3d 900, 901 (8th Cir. 2011)

Protected = connected to the Internet


Access CrimeCFAA prohibits the access of a protected computer that is: Without authorization, or Exceeds authorized access, Where the person accessing:

Obtains information Causes damage Commits a fraud Traffics in

passwords Obtains something of

value Commits extortion

Transmits damaging info


Elements: Easiest CFAA Claim1. Intentionally access computer;2. Without authorization or

exceeding authorized access;3. Obtained information from any

protected computer; and4. Victim incurred a loss to one or

more persons during any 1-year period of at least $5,000


Key Issues: Circuit SplitTrilogy of Access Theories

Strict Access (2nd, 4th & 9th Cir.) Agency (7th Cir) Intended-Use (1st, 3rd, 5th, 8th, 11th)

Policy Essentials: limit authorization Cover use of computer and data Restrict duration (i.e., terminate

right) Restrict purpose (i.e., business use)


Key Issues: Civil RemedyLoss $5,000 jurisdictional threshold Damage ≠ damages ≠ loss

(or)Interruption of service


Texas: Computer Crimes Breach of Computer Security Ch. 33 Texas Penal Code

Civil cause of action in TCPRC Generally follows CFAA Broader language

Attorney’s fees recoverable


Breach of Computer SecurityElements

knowingly accesses a computer, computer network, or computer system;

without the effective consent of the owner

Consent is not effective if: induced by deception or coercion; used for a purpose other than that for

which the consent was given; (others excluded)


Pros & Cons Pros

Federal court (if you want) Injunctive relief The dude who cried

Cons Focus on computer, not data (TUTSA) Non-Competes = data Must have policy language Complex & exotic

Virtually all companies will be breached. Will they be liable?It’s not the breach; it’s their diligence and response that matters most.Companies have a duty to be reasonably informed of and take reasonable measures to protect against cybersecurity risks.

Shawn TumaCybersecurity PartnerScheef & Stone, [email protected]@shawnetumablog: www.shawnetuma.comweb: www.solidcounsel.com

This information provided is for educational purposes only, does not constitute legal advice, and no attorney-client relationship is created by this presentation.

Shawn Tuma is a cyber lawyer business leaders trust to help solve problems with cutting-edge issues involving cybersecurity, data privacy, computer fraud, and intellectual property law. He is a Cybersecurity & Data Protection Partner at Scheef & Stone, LLP, a full service commercial law firm in Texas serving clients throughout the US. Board of Directors, North Texas Cyber Forensics Lab Board of Directors & General Counsel, Cyber Future

Foundation Texas SuperLawyers 2015-16 (IP Litigation) Best Lawyers in Dallas 2014-16, D Magazine (Digital

Information Law) Council, Computer & Technology Section, State Bar of

Texas Chair, Civil Litigation & Appellate Section, Collin County

Bar Association College of the State Bar of Texas Privacy and Data Security Committee, Litigation,

Intellectual Property Law, and Business Sections of the State Bar of Texas

Information Security Committee of the Section on Science & Technology Committee of the American Bar Association

North Texas Crime Commission, Cybercrime Committee Infragard (FBI) International Association of Privacy Professionals (IAPP) Information Systems Security Association (ISSA) Board of Advisors, Optiv Security Editor, Business Cybersecurity Business Law Blog