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Security Breaches Don’t Affect Stock Price

Interesting research: “Long-term market implications of data breaches, not,” by Russell Lange and Eric W. Burger.

Abstract: This report assesses the impact disclosure of data breaches has on the total returns and volatility of the affected companies’ stock, with a focus on the results relative to the performance of the firms’ peer industries, as represented through selected indices rather than the market as a whole. Financial performance is considered over a range of dates from 3 days post-breach through 6 months post-breach, in order to provide a longer-term perspective on the impact of the breach announcement.

Key findings:

  • While the difference in stock price between the sampled breached companies and their peers was negative (1.13%) in the first 3 days following announcement of a breach, by the 14th day the return difference had rebounded to + 0.05%, and on average remained positive through the period assessed.

  • For the differences in the breached companies’ betas and the beta of their peer sets, the differences in the means of 8 months pre-breach versus post-breach was not meaningful at 90, 180, and 360 day post-breach periods.

  • For the differences in the breached companies’ beta correlations against the peer indices pre- and post-breach, the difference in the means of the rolling 60 day correlation 8 months pre- breach versus post-breach was not meaningful at 90, 180, and 360 day post-breach periods.

  • In regression analysis, use of the number of accessed records, date, data sensitivity, and malicious versus accidental leak as variables failed to yield an R2 greater than 16.15% for response variables of 3, 14, 60, and 90 day return differential, excess beta differential, and rolling beta correlation differential, indicating that the financial impact on breached companies was highly idiosyncratic.

  • Based on returns, the most impacted industries at the 3 day post-breach date were U.S. Financial Services, Transportation, and Global Telecom. At the 90 day post-breach date, the three most impacted industries were U.S. Financial Services, U.S. Healthcare, and Global Telecom.

The market isn’t going to fix this. If we want better security, we need to regulate the market.

Note: The article is behind a paywall. An older version is here. A similar article is here.

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Uber Data Hack

Uber was hacked, losing data on 57 million driver and rider accounts. The company kept it quiet for over a year. The details are particularly damning:

The two hackers stole data about the company’s riders and drivers ­– including phone numbers, email addresses and names — from a third-party server and then approached Uber and demanded $100,000 to delete their copy of the data, the employees said.

Uber acquiesced to the demands, and then went further. The company tracked down the hackers and pushed them to sign nondisclosure agreements, according to the people familiar with the matter. To further conceal the damage, Uber executives also made it appear as if the payout had been part of a “bug bounty” — a common practice among technology companies in which they pay hackers to attack their software to test for soft spots.

And almost certainly illegal:

While it is not illegal to pay money to hackers, Uber may have violated several laws in its interaction with them.

By demanding that the hackers destroy the stolen data, Uber may have violated a Federal Trade Commission rule on breach disclosure that prohibits companies from destroying any forensic evidence in the course of their investigation.

The company may have also violated state breach disclosure laws by not disclosing the theft of Uber drivers’ stolen data. If the data stolen was not encrypted, Uber would have been required by California state law to disclose that driver’s license data from its drivers had been stolen in the course of the hacking.

Uber was hacked, losing data on 57 million driver and rider accounts. They kept it quiet for over a year. The details are particularly damning:

The two hackers stole data about the company’s riders and drivers ­- including phone numbers, email addresses and names -­ from a third-party server and then approached Uber and demanded $100,000 to delete their copy of the data, the employees said.

Uber acquiesced to the demands, and then went further. The company tracked down the hackers and pushed them to sign nondisclosure agreements, according to the people familiar with the matter. To further conceal the damage, Uber executives also made it appear as if the payout had been part of a “bug bounty” ­- a common practice among technology companies in which they pay hackers to attack their software to test for soft spots.

And almost certainly illegal:

While it is not illegal to pay money to hackers, Uber may have violated several laws in its interaction with them.

By demanding that the hackers destroy the stolen data, Uber may have violated a Federal Trade Commission rule on breach disclosure that prohibits companies from destroying any forensic evidence in the course of their investigation.

The company may have also violated state breach disclosure laws by not disclosing the theft of Uber drivers’ stolen data. If the data stolen was not encrypted, Uber would have been required by California state law to disclose that driver’s license data from its drivers had been stolen in the course of the hacking.

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Deloitte Hacked

The large accountancy firm Deloitte was hacked, losing client e-mails and files. The hackers had access inside the company’s networks for months. Deloitte is doing its best to downplay the severity of this hack, but Bran Krebs reports that the hack “involves the compromise of all administrator accounts at the company as well as Deloitte’s entire internal email system.”

So far, the hackers haven’t published all the data they stole.

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Good Article About Google’s Project Zero

Fortune magazine just published a good article about Google’s Project Zero, which finds and publishes exploits in other companies’ software products.

I have mixed feeling about it. The project does great work, and the Internet has benefited enormously from these efforts. But as long as it is embedded inside Google, it has to deal with accusations that it targets Google competitors.

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Corporate Abuse of Our Data

Last week, we learned about a striking piece of malware called Regin that has been infecting computer networks worldwide since 2008. It’s more sophisticated than any known criminal malware, and everyone believes a government is behind it. No country has taken credit for Regin, but there’s substantial evidence that it was built and operated by the United States.

This isn’t the first government malware discovered. GhostNet is believed to be Chinese. Red October and Turla are believed to be Russian. The Mask is probably Spanish. Stuxnet and Flame are probably from the U.S. All these were discovered in the past five years, and named by researchers who inferred their creators from clues such as who the malware targeted.

I dislike the “cyberwar” metaphor for espionage and hacking, but there is a war of sorts going on in cyberspace. Countries are using these weapons against each other. This affects all of us not just because we might be citizens of one of these countries, but because we are all potentially collateral damage. Most of the varieties of malware listed above have been used against nongovernment targets, such as national infrastructure, corporations, and NGOs. Sometimes these attacks are accidental, but often they are deliberate.

For their defense, civilian networks must rely on commercial security products and services. We largely rely on antivirus products from companies such as Symantec, Kaspersky, and F-Secure. These products continuously scan our computers, looking for malware, deleting it, and alerting us as they find it. We expect these companies to act in our interests, and never deliberately fail to protect us from a known threat.

This is why the recent disclosure of Regin is so disquieting. The first public announcement of Regin was from Symantec, on November 23. The company said that its researchers had been studying it for about a year, and announced its existence because they knew of another source that was going to announce it. That source was a news site, the Intercept, which described Regin and its U.S. connections the following day. Both Kaspersky and F-Secure soon published their own findings. Both stated that they had been tracking Regin for years. All three of the antivirus companies were able to find samples of it in their files since 2008 or 2009.

So why did these companies all keep Regin a secret for so long? And why did they leave us vulnerable for all this time?

To get an answer, we have to disentangle two things. Near as we can tell, all the companies had added signatures for Regin to their detection database long before last month. The VirusTotal website has a signature for Regin as of 2011. Both Microsoft security and F-Secure started detecting and removing it that year as well. Symantec has protected its users against Regin since 2013, although it certainly added the VirusTotal signature in 2011.

Entirely separately and seemingly independently, all of these companies decided not to publicly discuss Regin’s existence until after Symantec and the Intercept did so. Reasons given vary. Mikko Hyponnen of F-Secure said that specific customers asked him not to discuss the malware that had been found on their networks. Fox IT, which was hired to remove Regin from the Belgian phone company Belgacom’s website, didn’t say anything about what it discovered because it “didn’t want to interfere with NSA/GCHQ operations.”

My guess is that none of the companies wanted to go public with an incomplete picture. Unlike criminal malware, government-grade malware can be hard to figure out. It’s much more elusive and complicated. It is constantly updated. Regin is made up of multiple modules — Fox IT called it “a full framework of a lot of species of malware” — making it even harder to figure out what’s going on. Regin has also been used sparingly, against only a select few targets, making it hard to get samples. When you make a press splash by identifying a piece of malware, you want to have the whole story. Apparently, no one felt they had that with Regin.

That is not a good enough excuse, though. As nation-state malware becomes more common, we will often lack the whole story. And as long as countries are battling it out in cyberspace, some of us will be targets and the rest of us might be unlucky enough to be sitting in the blast radius. Military-grade malware will continue to be elusive.

Right now, antivirus companies are probably sitting on incomplete stories about a dozen more varieties of government-grade malware. But they shouldn’t. We want, and need, our antivirus companies to tell us everything they can about these threats as soon as they know them, and not wait until the release of a political story makes it impossible for them to remain silent.

This essay previously appeared in the MIT Technology Review.

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