Web services provider Yahoo has been fined $35m (£16.5m) by the US Securities and Exchange Commission (SEC) to settle charges that it misled investors by failing to disclose one of the world’s largest data breaches in which hackers stole personal data relating to hundreds of millions of user accounts
In December 2014 Russian hackers gained access to usernames, email addresses, phone numbers, birthdates, encrypted passwords, and security questions and answers, which were known internally as the company’s ‘crown jewels’.
The SEC claims that although information relating to the breach was reported by the security team to members of Yahoo’s senior management and legal department, Yahoo failed to properly investigate the circumstances of the breach and to adequately consider whether the breach needed to be disclosed to investors. It also did not inform its auditors.
The fact of the breach was not disclosed to the investing public until more than two years later, when in 2016 Yahoo was in the process of closing the acquisition of its operating business by Verizon Communications.
Jina Choi, director of the SEC's San Francisco regional office, said: ‘Yahoo’s failure to have controls and procedures in place to assess its cyber-disclosure obligations ended up leaving its investors totally in the dark about a massive data breach. Public companies should have controls and procedures in place to properly evaluate cyber incidents and disclose material information to investors.’
The SEC said that when Yahoo filed several quarterly and annual reports during the two-year period following the breach, the company failed to disclose the breach or its potential business impact and legal implications.
Instead, the company’s SEC filings stated that it faced only the risk of, and negative effects that might flow from, data breaches.
In addition, the SEC’s order found that Yahoo did not share information regarding the breach with its auditors or outside counsel to assess the company’s disclosure obligations in its public filings.
Finally, Yahoo failed to maintain disclosure controls and procedures designed to ensure that reports from Yahoo’s information security team concerning cyber breaches, or the risk of such breaches, were properly and timely assessed for potential disclosure.
Verizon acquired Yahoo’s operating business in June 2017. Yahoo has since changed its name to Altabac.
Yahoo has neither admitted nor denied the findings in the SEC's order.
Report by Pat Sweet
