25 Apr 2018

Yahoo pays out $35 million for misleading investors after data breach

Yahoo!, now called Altaba, did not disclose for two years a 2014 data breach affecting over 500 million user accounts

Ken Wolter

Altaba, formerly known as Yahoo!, has settled with The Securities and Exchange Commission on claims that it misled investors about a 2014 data breach which affected more than 500 million user accounts, and agreed to pay out $35 million. According to the SEC’s order, within days of the December 2014 intrusion, Yahoo’s information security team learned that Russian hackers had stolen what the security team referred to internally as the company’s 'crown jewels' -  usernames, email addresses, phone numbers, birthdates, encrypted passwords, security questions and answers for hundreds of millions of user accounts.  Although information relating to the breach was reported 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.  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, Inc. 

Enforcement action warranted

Steven Peikin, co-director of the SEC Enforcement Division, stated: 'We do not second-guess good faith exercises of judgment about cyber-incident disclosure. But we have also cautioned that a company’s response to such an event could be so lacking that an enforcement action would be warranted. This is clearly such a case.' Yahoo has since changed its name to Altaba Inc. Yahoo neither admitted nor denied the findings in the SEC's order, which requires the company to cease and desist from further violations. The SEC has stated its investigation is continuing.