Our thinking

Cybersecurity: Legal implications and risk management

What's inside

In an increasingly interconnected world, cyber risk is firmly at the top of the boardroom agenda, and having an effective data breach response programme is no longer optional.

Cybersecurity crisis management

The internet knows no borders, neither do we. Our global team of cybersecurity response experts work across borders, combining data protection, privacy, regulatory, white collar and litigation expertise in order to deliver seamless crisis management and legal advice, whenever and wherever needed.

The digitalization and free flow of information has transformed global business. However, with increased opportunities have come new and increased risks, together with complex legislative regimes that can vary significantly by jurisdiction, and are constantly evolving. Even the most conscientious company can become the victim of a cybersecurity incident, such as the stealing of client or company information, or a ransomware attack. We work with a wide range of multinational companies to manage their cybersecurity risks, developing rapid response plans, providing time-critical crisis management advice, and working with clients to manage any resulting legal issues that may arise. 

Key issues

Why?

  • Reputation
  • Fines
  • Breach of contract
  • M&A due diligence
  • Insurance
  • Proprietary information
  • Litigation
  • Criminal offences
  • Negligence

Be prepared

Risk Assessment

  • Key Information
  • Assets
  • Key Systems
  • Threat Analysis
  • Security Measures

Toolkit

  • Scripts
  • Internal and 
    External
  • Communications
  • Employee contacts
  • Response Plan
  • Live Training
  • Business Continuity Plan

Key considerations

Customer/individual rights

  • Requests for data
  • Data Protection Authority Complaints
  • Group litigation orders
  • Resolution mechanisms

B2B relationships

  • Contractual obligations
  • Contractual liability
  • Tort

Reputation management

  • Media strategy
  • Customer interaction
  • Employee engagement

Commercial

  • Proprietary
  • Information/Trade Secrets
  • System Disruption

Regulatory issues

  • Data Protection Authority
  • Financial Regulators
  • Market authorities
  • Other regulators

Privacy & data protection

  • Jurisdictions involved
  • Reporting obligations
    • individuals
    • authorities

Evidence

  • Law Enforcement Involvement
  • Legal Privilege
  • Preservation of Evidence

Response

Crisis Team

  • Legal (internal and external)
  • IT/IT Forensics
  • PR
  • Regulatory
  • DPO
  • Executive committee
  • HR
  • Vendor manager

Key Actions

  • Work with forensic investigators to:
    • Identify and contain breach
    • Gather/preserve evidence
    • Maximise legal privilege coverage
  • Contact crisis team
  • Bring in external partners
  • Identify key risks and priorities based on nature of breach
  • Assess notification requirements
  • Communications
  • Regulatory notifications

 

Articles

2024

SEC’s Corp Fin Director Issues Statement on Cybersecurity Incident Disclosures

On May 21, 2024, the SEC's Director of the Division of Corporation Finance issued a statement on cybersecurity incident disclosures in light of the SEC's new cybersecurity disclosure rules. Our summary of this statement and key take-aways from White & Case's survey of cybersecurity disclosures is below.

2023

The SEC’s Charges Against SolarWinds and its Chief Information Security Officer Provide Important Cybersecurity Lessons for Public Companies

On October 30, 2023, the US Securities and Exchange Commission ("SEC") announced that it filed charges against SolarWinds Corp. ("SolarWinds" or the "Company") and its Chief Information Security Officer ("CISO") in connection with the SEC Division of Enforcement's ("Enforcement Division") investigation of a cyberattack.

SEC Adopts Mandatory Cybersecurity Disclosure Rules

On July 26, 2023, the Securities and Exchange Commission ("SEC"), in a 3-2 vote, adopted rules that will require public companies to make prescribed cybersecurity disclosures.

Shaping the future of digital and cybersecurity governance

In this brief three-minute video, London-based partner Lawson Caisley, Chair of White & Case's Global Cyber Risk Committee, shares his insights on governing cyber risk at the corporate level and some of the challenges of cyber risk management in the boardroom. Filmed at the Digital Directors Network (DDN) Domino 2023 conference on digital and cybersecurity governance.

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Prioritizing cybersecurity at the corporate level

In this short three-minute video, Washington, DC–based partner F. Paul Pittman discusses the implications of the proposed new SEC rules on cybersecurity governance and what corporate boards can do now. Filmed at the Digital Directors Network (DDN) Domino 2023 conference on digital and cybersecurity governance.

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Cybersecurity Developments and Legal Issues

The potential for cybersecurity threats and attacks looms large and the technology companies developing new products and services play a constant game of cat-and-mouse with hackers and cybercriminals for control of cyberspace. Here are six points to consider when analyzing cybersecurity risks and protections.

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Directors face personal liability over cybersecurity failures

In an article for The Times, White & Case partner Lawson Caisley discusses why it could become increasingly common for UK directors to "face personal liability and regulatory censure as a result of their company suffering or mishandling a cyberbreach".

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2022

Director liability for cyber breaches: transatlantic warning signs?

Two legal cases in the US in the past month suggest that regulators and prosecutors are becoming more determined to take personal action against directors and senior executives who fail to deal adequately with cyber security breaches.  

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SEC Proposes Mandatory Cybersecurity Disclosure Rules

On March 9, 2022, the Securities and Exchange Commission ("SEC") proposed rules that would require public companies to make prescribed cybersecurity disclosures.

2021

Legal 500's In-House Lawyer Magazine Autumn - Commercial Litigation Focus (Germany)

In The Legal 500's newly released In-House Lawyer Magazine a group of White & Case lawyers has contributed a legal briefing on trends in German commercial litigation.

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AAA plc & ors v Persons Unknown: Cyber Activism or Blackmail?

In recent years, demands for payments in cryptocurrencies have become the ransom of choice for cyber extortionists and other online frauds. As a result, the English Court's powers are increasingly being called upon.

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Time to Revisit Risk Factors in Periodic Reports

Ninth Circuit Decision Highlights Importance of Updating Risk Factors to Address Material Developments, including those relating to Cybersecurity Risks.

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Cybersecurity Enforcement: New York Department of Financial Services issues first penalty under Cybersecurity Regulation

Consistent with its increasing activity in the cybersecurity enforcement space, in March 2021, the NYDFS issued its first penalty under the Cybersecurity Regulation. This client alert explores the settlement and offers takeaways on the areas of focus by the NYDFS in enforcement actions under the Cybersecurity Regulation.

Compensating non-material damages based on Article 82 GDPR

Is a data subject entitled to compensation from a controller or processor if the data subject's GDPR rights have been infringed, even if they have not suffered any kind of material damage? 

Corporate Boards Must Ask Key Cybersecurity Questions

Cybersecurity has been a mainstay of quarterly board agendas for years.

2020

Cybersecurity Risk: Top 5 strategies to build resilience

The fourth webinar in our 2020 Autumn Webinar Series covered crucial steps you should be taking to protect against cybersecurity threats and what you should do when disaster strikes.

Before the Dust Settles: The California Privacy Rights Act Ballot Initiative Modifies and Expands California Privacy Law

Hot on the heels of the California Attorney General's rulemaking process for the California Consumer Privacy Act ("CCPA"), California voters have passed a ballot initiative to expand and create new privacy rights for consumers.

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US Cybersecurity Standards to Get Tougher and More Specific

In the past few years, cybersecurity has taken on increasing importance in the eyes of lawmakers and regulators.

Data Sharing Without Borders

UK law enforcement can now obtain an order against a person in or operating in the US for the production of or access to electronic data under a new ‘landmark’ US-UK data sharing agreement.

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Responding to a cyber-incident

The COVID-19 crisis has exposed many companies to more cyber threats. Tim Hickman and John Timmons discuss what businesses need to do should a major incident occur.

Trending: Legal protection for cryptoasset stakeholders

Recent decisions in Singapore and New Zealand confirm that the courts are prepared to act to provide greater certainty and support to stakeholders in cryptoassets.

Recovering the ransom: High Court confirms Bitcoin status as property

The High Court has determined that Bitcoin (and other similar cryptocurrencies) can be considered property under English law, and could be the subject of a proprietary injunction. The Court granted the injunction to assist an insurance company to recover Bitcoin that it had transferred in order to satisfy a malware ransom demand.

2019

Navigating Privacy and Cyber Incident Notification and Disclosure Requirements

Organisations are facing increasing uncertainty in assessing global notification and disclosure obligations and making a determination of whether to notify or disclose a privacy violation or security incident in today's complex regulatory environment. This article offers six steps companies should consider when navigating this complex process.

Proposal on the Application of the NIS Regulations post-Brexit

This article examines the impact of the UK Network and Information Systems Regulations 2018 (SI 2018/506) (NIS Regulations) on organisations post Brexit and their obligations under applicable cybersecurity law.

Contacts

SEC’s Corp Fin Director Issues Statement on Cybersecurity Incident Disclosures

Key Take-Aways from White & Case Survey of Cybersecurity Disclosures

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6 min read

On May 21, 2024, the SEC's Director of the Division of Corporation Finance issued a statement on cybersecurity incident disclosures in light of the SEC's new cybersecurity disclosure rules. Our summary of this statement and key take-aways from White & Case's survey of cybersecurity disclosures is below.

The statement advises on (1) when disclosure should be made under an Item 1.05 Form 8-K (Material Cybersecurity Incidents), versus another Item, such as Item 8.01 (Other Events), and (2) materiality determinations generally for cybersecurity incidents. The statement by Erik Gerding was provided in his official capacity as the Commission's Director of Division of Corporation Finance but notes that it does not necessarily reflect the views of the Commission and does not alter or amend applicable law.1

Summary of Gerding’s Statement

In summary, Director Gerding advises the following in his statement: 

  • Item 1.05 for Material Cybersecurity Incident Versus Item 8.01 for Immaterial Incidents. In cases where a company chooses to voluntarily disclose a cybersecurity incident for which it has not yet made a materiality determination (or a cybersecurity incident that the company already determined was not material), the "Division of Corporation Finance encourages the company to disclose that cybersecurity incident under a different item of Form 8-K (for example, Item 8.01)" titled "Other Events" – rather than under the newly adopted Item.1.05 of the Form 8-K titled "Material Cybersecurity Incidents."
  • Item 8.01 Form 8-K for Immaterial Incident, Followed by Item 1.05 if Incident Becomes Material. If a company chooses to disclose an immaterial incident (or one for which it has not yet made a materiality determination) under Item 8.01 of Form 8-K, and it subsequently determines that the incident is material, it should file an Item 1.05 Form 8-K within four business days of such subsequent materiality determination. That subsequent Form 8-K on Item 1.05 may refer to the earlier Item 8.01 Form 8-K and will need to satisfy the requirements of Item 1.05.

In addition, Director Gerding addresses the following:

  • Assess All Relevant Factors to Determine Materiality. In determining whether a cybersecurity incident is material, companies should assess "all relevant factors" – in particular, a materiality assessment should "not be limited to the incident's impact on the company's financial condition and results of operation" and should "consider qualitative factors alongside quantitative factors," such as whether the incident will harm its "reputation, customer or vendor relationships, or competitiveness" as well as consider "the possibility of litigation or regulatory investigations or actions, including regulatory actions by state and Federal Governmental authorities and non-U.S. authorities."
  • Ability to Determine a Cybersecurity Incident is Material, Before Impacts are Known. In cases where a cybersecurity incident is so significant that a company concludes that it is material even though the company has not yet determined its impact (or reasonably likely impact), the company should disclose the incident in an Item 1.05 Form 8-K, include a statement noting that the company has not yet determined the impact (or reasonably likely impact) of the incident, and then amend the Form 8-K to disclose the impact once that information is available. As the statement notes, the initial Form 8-K filing should still "provide investors with information necessary to understand the material aspects of the nature, scope, and timing of the incident, notwithstanding the company's inability to determine the incident's impact (or reasonably likely impact) at that time."

The Director's statement explains that it is "not intended to discourage companies from voluntarily disclosing cybersecurity incidents for which they have not yet made a materiality determination, or from disclosing incidents that companies determine to be immaterial." Rather, the intent of the statement is to "encourage the filing of such voluntary disclosures in a manner that does not result in investor confusion" and it acknowledges the value of such voluntary disclosures to investors, the marketplace, and ultimately to companies. At the same time, the statement emphasizes that, as noted in the adopting release, "Item 1.05 is not a voluntary disclosure, and it is by definition material because it is not triggered until the company determines the materiality of an incident." As a result, the statement posits that "if all cybersecurity incidents are disclosed under Item 1.05, then there is a risk that investors will misperceive immaterial cybersecurity incidents as material, and vice versa."

White & Case Survey of Disclosures

White & Case's Public Company Advisory Group has been tracking Form 8-K cybersecurity incident disclosures since December 18, 2023, the effective date of the new rules. Between December 18, 2023, and May 23, 2024, 22 companies filed a total of 35 cybersecurity incident-related 8-Ks, either disclosing cybersecurity incidents or updating information on previously disclosed incidents:

  • 22 were Form 8-Ks and 13 were Form 8-K/As to update previous disclosures
  • 26 of these were under Item 1.05 "Material Cybersecurity Incidents" 
  • 7 of these were under Item 8.01 "Other Events"
  • 2 of these were under Item 7.01 "Regulation FD Disclosure"2
  • Of the 26 filed under Item 1.05, a total of 23, or 88%, explicitly stated that they did not have a material impact or that the company had not yet made a materiality determination regarding the incident.
  • Of the nine filed under other items (Item 8.01 or Item 7.01), a total of eight, or 89%, explicitly stated that they did not have a material impact or that the company had not yet made a materiality determination.

For more information on our survey, including data on the actual impacts disclosed and timing of the disclosures, as well as survey information on annual report on Form 10-K/20-F cybersecurity disclosures, please contact the authors of this client alert. 

Conclusion

Director Gerding's statement was issued in an environment that provides numerous challenges for public companies as they consider how, when and whether to disclose information about a cybersecurity incident. Companies are routinely subject to cybersecurity incidents, the vast majority of which are not significant, and beyond an item number for a Form 8-K,3 companies are weighing how, when and whether to disclose these incidents in the face of potential media scrutiny, notification requirements under various cybersecurity incident and data breach notification regulations, the potential for regulatory scrutiny and enforcement,4 threats of private action from the plaintiff's bar, as well as volatile developments with respect to the cybersecurity incidents, among other concerns. Accordingly, as companies consider their disclosures on cybersecurity incidents, the focus should remain on the controls necessary to determine whether an incident is material and on the substantive disclosures that will ultimately be helpful for investors and companies in light of the applicable facts and circumstances.

The following White & Case attorneys authored this alert: Maia Gez, Scott Levi, F. Paul Pittman, Michelle Rutta, Joel Cohen, Tami Stark, Danielle Herrick

1 See Footnote 1 of the statement, which also notes that "this statement, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person."
2 Note that three of the Form 8-Ks filed under Item 1.05 also filed Item 7.01 disclosure in the same Form 8-K.
3 The item numbers in a Form 8-K tend to be a technical aspect of disclosure and SEC form compliance. With regard to fundamental antifraud liability concerns, it is important to remember that the substance of the disclosure is the information being provided to investors, regardless of the item number used. For additional considerations, also see Instruction 3 of the Form 8-K and market practice for using the Item 5.03 item number even when not technically required. 
4 See our client alert on the Solarwinds case. The defendants in the case have since filed a motion to dismiss the case and rejected the SEC's claims, arguing that its disclosure in a Form 8-K had disclosed the key facts about the attack only one trading day after the company learned of the incident. 

White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.

This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

© 2024 White & Case LLP

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