Over recent months, numerous state regulators, including in Massachusetts, Texas, and New Jersey, have been exercising greater oversight of cryptocurrency businesses. On April 17, 2018, the office of the New York Attorney General Eric Schneiderman (“NYAG”) launched the Virtual Markets Integrity Initiative, which will seek information from various platforms that trade cryptocurrencies to better protect consumers. The initiative responds to concerns that cryptocurrency trading platforms may not provide consumers with the same information available from traditional exchanges. As part of the initiative, the NYAG’s Investor Protection Bureau sent thirteen major cryptocurrency trading platforms questionnaires relating to internal policies, controls, and best practices. The Bureau intends to consolidate and disseminate to consumers the information it receives. Continue Reading New York Attorney General Becomes Most Recent State Regulator To Foray Into Cryptocurrency Oversight
On April 12, 2018, the U.S. Federal Trade Commission (“FTC” or “Commission”) announced an agreement with Uber Technologies, Inc., to expand an August 2017 settlement regarding a 2014 data breach to include new violations arising from a second data breach that Uber discovered in 2016 but did not publicly disclose for over one year. The revised settlement order imposes new notification, reporting, and records retention obligations on Uber for up to 20 years regarding third-party audits of its privacy program, future data breaches involving personal data, and its bug bounty program. The proposed settlement order will be open for public comment for 30 days, after which time the Commission is likely to make the order final.
In August 2017, Uber entered into a consent agreement with the FTC related to a data breach that occurred three years before. The complaint resolved by the 2017 settlement order alleged that, in May 2014, an intruder used an access key publicly posted on the website GitHub to access sensitive personal information of Uber drivers (who the FTC treats as consumers) that Uber stored with a cloud provider. This information allegedly included unencrypted names, driver’s license numbers, bank account and routing numbers, and Social Security numbers. The FTC alleged that Uber had failed to (1) “implement reasonable access controls” to safeguard personal data of drivers and riders stored in the cloud, (2) implement reasonable security training and guidance, (3) maintain a written security program, and (4) encrypt certain information stored with the cloud provider. The complaint charged that Uber’s representations about the security of, and internal monitoring and auditing regarding access to, consumers’ personal information were false or misleading in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).
In the 2018 complaint, the FTC alleges that Uber contemporaneously discovered a second data breach that had occurred in the fall of 2016—during the midst of the FTC’s nonpublic investigation into the 2014 breach. According to the complaint, intruders used an access key that had been posted to a private repository associated with GitHub to download unencrypted files containing personal data of U.S. riders and drivers, including approximately “25.6 million names and email addresses, 22.1 million names and mobile phone numbers, and 607,000 names and driver’s license numbers.” Continue Reading Revised FTC-Uber data breach settlement to include second breach, criticize ‘bug bounty’ payment
As of last month, when South Dakota and Alabama passed data breach notification laws, all 50 states (as well as the District of Columbia and several U.S. territories) now have data breach notification laws on their books. Continue Reading All 50 States Now Have Data Breach Notification Laws
On March 27, 2018, Massachusetts Secretary of State William Galvin announced that the state had ordered five firms to halt initial coin offerings (“ICOs”) on the grounds that the ICOs constituted unregistered offerings of securities but made no allegations of fraud. These orders follow a growing line of state enforcement actions aimed at ICOs.
This was not Massachusetts’s first foray into regulating ICOs. On January 17, 2018 the state filed a complaint alleging violations of securities and broker-dealer registration requirements against the company Caviar and its founder for an ICO that sought to create a “pooled investment fund with hedged exposure to crypto-assets and real estate debt.”
The 2018 Consolidated Appropriations Act, which was signed by President Donald Trump on March 23, 2018, included a little-debated provision that revised portions of the 1986 Stored Communications Act (“SCA”) to permit the government to access through the use of a warrant or subpoena stored communications held abroad by providers of electronic communications services that are subject to United States jurisdiction.
The Clarifying Lawful Overseas Use of Data Act – or “CLOUD Act” – establishes that the SCA’s provisions concerning the production of electronic communications extend to those held abroad, establishes a framework for service providers to challenge an SCA warrant, directs courts to conduct a limited comity analysis to balance certain factors relevant to cross-border transfers of data, and introduces an incentive for foreign governments to enter into executive agreements with the United States governing cross-border data requests.
Prior to the enactment of the CLOUD Act, the Supreme Court was poised to rule in the case Microsoft Corporation v. United States of America, No. 17-2, on whether the SCA in its previous form permitted the use of a warrant to obtain electronic communications stored by a U.S. company on foreign servers. The relevance of that case, which was argued in February, is substantially undermined by this Congressional action.
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In September 2017, the SEC announced the creation of a new Cyber Unit within the Enforcement Division. Commenting on the launch of the new unit, Enforcement Division Co-Director Stephanie Avakian described “[c]yber-related threats and misconduct” as “among the greatest risks facing investors and the securities industry.” This alert memorandum takes stock of the SEC’s cyber enforcement actions since the Cyber Unit was formed as well as other recent SEC enforcement actions, guidelines, and public comments that shed light on potential future SEC cyber-enforcement in areas such as insider trading, cryptocurrencies and ICOs, cyber-related disclosures and policies, and cybersecurity safeguards.
Please click here to read the full alert memorandum.
In an indictment unsealed on March 23, 2018, the Department of Justice (DOJ) brought criminal charges against nine Iranian nationals affiliated with the Mabna Institute in Iran, alleging computer intrusion, fraud, and aggravated identity theft. Prosecutors charged the defendants with conspiring to steal a massive amount of intellectual property from universities, private companies, and government institutions worldwide, obtaining more than 31 terabytes of data. The defendants allegedly acted on behalf of the Islamic Revolutionary Guard Corps (IRGC), which is an arm of the Iranian government whose responsibilities include foreign operations and intelligence gathering. In addition to the announced charges, the nine defendants and the Mabna Institute were also designated for sanctions by the Treasury Department, Office of Foreign Asset Control, pursuant to Executive Order 13694 “Blocking the Property of certain Persons Engaging in Significant Malicious Cyber-Enabled Activities.” Continue Reading Department of Justice Indicts Iranian Hackers, Revealing Significant Data Breach and Targeting of Intellectual Property of Private Companies and Educational Institutions
Following on the heels of the SEC’s updated interpretive guidance on cybersecurity disclosure, SEC Chairman Jay Clayton and SEC Commissioner Robert Jackson each recently made public statements underscoring the agency’s increasing focus on cybersecurity.
On March 12, 2018, Chairman Clayton stated that the SEC will closely monitor how corporations respond to the new interpretive guidance at a conference held by the Council of Institutional Investors. During an interview conducted by former Chairwoman Elisse Walter, Chairman Clayton said implementation of the interpretive guidance “will be a focal point for staff review” and that companies should work to determine their disclosure obligations under the current rules. Reiterating the interpretive guidance’s statement that the SEC expects companies to make disclosures “tailored” to their particular cybersecurity risks and incidents, Chairman Clayton stated that companies must put significant effort into determining their individual disclosure obligations under the current rules, meaning that “[r]eally good lawyering and governance is necessary.” Chairman Clayton also alluded to calls by certain SEC Commissioners for rulemaking requiring the disclosure of cybersecurity incidents in 8-K filings: “In terms of writing a rule, if you wanted to make it a specific 8-K requirement, the issue there is whether something is material,” said Chairman Clayton, adding “[i]t’s really a facts and circumstances situation, and it can vary from industry to industry and company to company.” Continue Reading SEC Officials Emphasize Close Monitoring of Cybersecurity Disclosures Following Release of Interpretive Guidance
On March 7, 2018, FBI Director Christopher Wray delivered remarks at Boston College that highlight the agency’s ongoing efforts to better respond to cyber threats. Director Wray’s remarks focused on the private and public sector partnerships that the FBI (and other authorities) are cultivating to combat the increased sophistication of cyber threats as they evolve into what he described as “full-blown economic espionage and extremely lucrative cyber crime.” Continue Reading FBI Director: FBI Might Not Share Information With Adversarial Authorities
This past week, we received further evidence that U.S. federal regulators will continue to scrutinize potential compliance issues in virtual currency trading and initial coin offerings (“ICOs”) under existing law. However, the key takeaway is that the U.S. regulators, so far, are doing so under established interpretations of their existing authority. In our view, none of these events should be construed either as establishing a new regulatory framework or as a significant expansion of prior regulatory authority.
Please click here to read the full alert memorandum.