Published on June 17th, 2021 📆 | 5069 Views ⚑
0SEC Cybersecurity Violations Settlement with First American Financial Corp.
On June 15, 2021, the Securities and Exchange Commission (SEC) announced settled charges against real estate settlement services company First American Financial Corporation for disclosure controls and procedures violations related to a cybersecurity vulnerability that exposed sensitive customer information. The SECâs order charges First American with violating Rule 13a-15(a) of the Securities Exchange Act of 1934. Without admitting or denying the SECâs findings, First American agreed to a cease-and-desist order and to pay a $487,616 penalty.
Why We are Sending this Alert:Â To remind issuers that they should ensure that their disclosure controls and procedures address cybersecurity and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from cyberattacks and security breaches.
Details of SECâs Order: As reported by the SEC, on the morning of May 24, 2019, a cybersecurity journalist notified First American of a vulnerability with its application for sharing document images that exposed over 800 million images dating back to 2003, including images containing sensitive personal data such as social security numbers and financial information.  In response, according to the order, First American issued a press statement on the evening of May 24, 2019, and furnished a Form 8-K to the Commission on May 28, 2019. However, according to the order, First Americanâs senior executives responsible for these public statements were not apprised of certain information that was relevant to their assessment of the companyâs disclosure response to the vulnerability and the magnitude of the resulting risk.
The order finds that First Americanâs senior executives were not informed that the companyâs information security personnel had identified the vulnerability several months earlier, but had failed to remediate it in accordance with the companyâs policies. The order finds that First American failed to maintain disclosure controls and procedures designed to ensure that all available, relevant information concerning the vulnerability was analyzed for disclosure in the companyâs public reports filed with the Commission.
âAs a result of First Americanâs deficient disclosure controls, senior management was completely unaware of this vulnerability and the companyâs failure to remediate it,â said Kristina Littman, Chief of the SEC Enforcement Divisionâs Cyber Unit. She also stated, âIssuers must ensure that information important to investors is reported up the corporate ladder to those responsible for disclosures,â and âFirst American did not have any disclosure controls and procedures related to cybersecurity, including incidents involving potential breaches of that data.â
Action Items: The order is a reminder that issuers should ensure that their disclosure controls and procedures address cybersecurity and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from cyberattacks and security breaches. At a minimum, disclosure controls and procedures and related protocols should specifically provide that cybersecurity incidents are promptly escalated and investigated, and reported to senior management, and where appropriate, to the Board of Directors.
Issuers should also consider reviewing their compliance programs to address the potential applicability of restrictions against trading while in possession of material, nonpublic information in connection with a cyberattack or security breach.
Gloss