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Cybercrime disclosures rare despite new SEC rule

By Richard Lardner

Associated Press

Published: Friday, June 29 2012 4:00 a.m. MDT

FILE -- In a July 13, 2011 file photo Senate Commerce Chairman Sen. Jay Rockefeller, D-W.Va., presides over a hearing of the committee on Capitol Hill in Washington. Rockefeller is adding a provision to cybersecurity legislation that would strengthen the requirement to report cybercrimes.

Manuel Balce Ceneta, file, Associated Press

Enlarge photo»

WASHINGTON — Hackers broke into computers at hotel giant Wyndham Worldwide Corp. three times in two years and stole credit card information belonging to hundreds of thousands of customers. Wyndham didn't report the break-in in corporate filings even though the Securities and Exchange Commission wants companies to inform investors of cybercrimes.

Amid whispers of sensational online break-ins resulting in millions of dollars in losses, it remains remarkably difficult to identify corporate victims of cybercrimes. Companies are afraid that going public would damage their reputations, sink stock prices or spark lawsuits.

The chairman of the Senate Commerce, Science and Transportation Committee, Sen. Jay Rockefeller, D-W.Va., is adding a provision to cybersecurity legislation that would strengthen the reporting requirement. The SEC's guidance issued in October is not mandatory. It was intended to update for the digital age a requirement that companies report "material risks" that investors want to know.

Rockefeller's measure would direct the SEC's five commissioners to make clear when companies must disclose cyber breaches and spell out steps they are taking to protect their computer networks from electronic intrusions.

The SEC recently challenged Internet retailer Amazon's decision to omit from its 2011 annual report references to the online theft of customer data held by Zappos, an online shoe company owned by Amazon. Amazon eventually agreed to modify the statement slightly, according to correspondence between the company and the SEC. But the company still argued that the Zappos attack was not covered by the commission's cybersecurity guidance because it had no material impact on Amazon's business.

Cybercrime is rampant and not confined to the United States. The head of Britain's domestic spy agency said this week that cybersecurity ranks alongside terrorism as one of the United Kingdom's most pressing security challenges. In one recent case, an unspecified, London-listed company hit by a cyberattack incurred revenue losses of $1.2 billion, MI5 Director General Jonathan Evans said in rare public remarks in London. He did not identify the company or say which country was behind the attack. The U.S. has said China and Russia are the governments most frequently engaged in such hacking.

"What is at stake is not just our government secrets but also the safety and security of our infrastructure, the intellectual property that underpins our future prosperity, and the commercially sensitive information that is the lifeblood of our companies and corporations," Evans said.

Research by a cybersecurity expert shows dozens of Fortune 500 companies have lost a wide range of valuable information to cybercrimes, including intellectual property, bank account credentials, restricted data about patients of pharmaceutical companies and internal legal records.

Rodney Joffe of Neustar, an Internet infrastructure management company in Virginia, monitors networks used by online criminal groups and traces the origin of stolen information. He found evidence that 162 out 168 companies in the manufacturing, chemical and transportation sectors had been compromised. The names of the companies are being kept confidential for proprietary reasons, he said.

"No one is safe. Everyone is compromised," said Joffe, Neustar's senior technologist. "When people tell you, 'We are protected as a company,' they are really fooling themselves."

The SEC isn't tracking how many companies comply with its cybersecurity guidance. But publicly traded companies historically have resisted supplying information about cyber incidents because it highlights their weak spots, said Peter Toren, a former federal prosecutor with the Justice Department's computer crime division.

"It just doesn't look good," Toren said.

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