On October 13, 2011, the United States Securities and Exchange Commission released guidance from the Division of Corporation Finance (Division) addressing the appropriate disclosure of cybersecurity risks and cyber incidents. The guidance document applies existing SEC disclosure principles to rapidly proliferating cyber incidents and purports to provide guidance “consistent with the relevant disclosure considerations that arise in connection with any business risk.” Despite this posture, the guidance suggests heightened scrutiny for such disclosures, and accordingly, reporting entities should carefully review their cybersecurity and cyber incident disclosure practices. The text of the Division’s guidance is available here.

The Division said that, consistent with the general principle of “disclosure of timely, comprehensive, and accurate information about risks and events that a reasonable investor would consider important to an investment decision,” information related to cybersecurity and cyber incidents may be required as part of each of the following standard disclosures:

• Risk Factors. The Division said that in Risk Factor disclosure “registrants should disclose the risk of cyber incidents if these issues are among the most significant factors that make an investment in the company speculative or risky.” Notably, the Division specifically included those risks arising from outsourcing and, when required for context, threatened cyber incidents.....

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