Cybersecurity Disclosure: The Risks Of Silence

by Dechert LLP

With the rise in targeted, sophisticated, malicious attacks on corporate America’s electronic infrastructure, companies are increasingly focused on their cybersecurity disclosure obligations. There is a growing concern that many companies – fearing reputational harm – are sitting silent, but recent disclosures from a number of companies indicate a shifting approach to cybersecurity disclosure. In addition, pronouncements from the Obama Administration and top regulators reinforce the importance of understanding cybersecurity disclosure obligations. Cybersecurity is critically important to regulators and failure to disclose cybersecurity risks or actual breaches will likely draw significant attention. This OnPoint outlines some of the reasons for companies’ increased focus on managing their cybersecurity risks.

SEC Guidance On Cybersecurity Disclosure

Failure to disclose a data security breach or cybersecurity risk may conflict with specific guidance from the Securities and Exchange Commission's (SEC) Division of Corporation Finance on disclosure obligations relating to cybersecurity risks and cyber incidents. Securities and Exchange Commission, CF Disclosure Guidance, Topic No. 2: Cybersecurity (Oct. 13, 2011). According to the guidance, cyber incidents and the risk of such incidents may give rise to disclosure obligations under current SEC rules. Because of the damage that a cyber incident can cause as well as existing obligations to disclose information that a “reasonable investor would consider important to an investment decision,” corporations may be required to provide information that allows investors to understand the nature of a company’s particular cybersecurity risks.

Regulators Have Identified Cybersecurity As A Top Priority

State and federal regulators have taken notice of the growing cybersecurity threat and made it a top priority. President Obama has declared that the “cyber threat is one of the most serious economic and national security challenges we face as a nation.” The U.S. Attorney for the Southern District of New York, Preet Bharara, similarly has stressed publicly the importance of prompt corporate disclosure of cybersecurity threats. In a New York Times op-ed piece, Bharara stated, “I have come to worry about few things as much as the gathering cyberthreat.” More recently, Norm Champ, Director of the SEC's Division of Investment Management, has echoed the importance of cybersecurity and placed proposing a privacy rule on his division’s “immediate” agenda. The Massachusetts Attorney General’s office has likewise reminded companies that it will pursue failures to disclose data breaches.

Recent Disclosure Trends

As regulators take aim at cybersecurity, more and more companies are coming forward about cybersecurity issues. The past few months have seen revelations that Chinese hackers infiltrated The New York Times computer systems and accessed employees’ passwords and e-mail accounts. Twitter, Facebook and Apple have likewise made similar disclosures. The Wall Street Journal and The Washington Post have also recently made known that they had been attacked. What emerges is a growing concern, and realization, that electronic security systems in corporate America are increasingly vulnerable.

Yet, many companies remain unclear on how to more effectively protect their systems and, in the event of an actual breach or known cybersecurity risk, what needs to be disclosed and how to do so. In this environment, cybersecurity disclosure is an issue that public companies cannot afford to ignore. Indeed, computer security experts estimate that more than a thousand companies have recently suffered cybersecurity attacks. McAfee Inc.’s former vice president for threat research, Dmitri Alperovitch, recently wrote that he is “convinced that every company in every conceivable industry with significant size and valuable intellectual property and trade secrets has been compromised (or will be shortly).” According to Mr. Alperovitch the Fortune Global 2000 firms should be divided up into two categories: “those that know they’ve been compromised and those that don’t yet know it.”

Companies should thus take a realistic approach to data security, analyzing their vulnerabilities, response protocols and current disclosures. Silence in the face of known security risks or data security breaches may result in far greater reputational harm and enforcement costs than making a required disclosure.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dechert LLP | Attorney Advertising

Written by:

Dechert LLP

Dechert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.