April 24, 2018 / 4:44 PM / in 5 months

U.S. regulator fines Altaba $35 million over 2014 Yahoo email hack

WASHINGTON/SAN FRANCISCO (Reuters) - U.S. regulators fined Altaba Inc, the company formerly known as Yahoo! Inc, $35 million on Tuesday to settle charges that kept its massive 2014 cyber security breach a secret from investors for more than two years.

The Securities and Exchange Commission’s case marks the first time it has gone after a company for failing to disclose a cyber security breach.

Altaba agreed to settle without admitting or denying any wrongdoing. A company spokesman declined to comment.

Yahoo’s information security team learned just days after the December 2014 breach that Russian hackers had stolen the company’s “crown jewels,” including email addresses, encrypted passwords and security questions, the SEC said in a statement.

Despite becoming aware of the breach and reporting it to Yahoo’s senior management and legal department, the company failed to properly investigate and did not disclose it to the public until more than two years later, when it was in the process of being acquired by Verizon Communication Inc, the regulator said.

Steven Peikin, co-director the SEC’s enforcement division, said cyber breaches were a priority for the agency and hoped companies facing similar issues would take note.

“The message in this case and the package of remedies here I think is a pretty strong one and I hope will be viewed as a significant penalty by other issuers,” he told reporters on a call.

“We are not seeking to second guess good faith disclosure decisions, or be unsympathetic to the perils that companies face from these kinds of intrusions,” he said, but Yahoo’s material misstatements, omissions and lack of controls fell substantially short of expectations.

The U.S. Justice Department announced charges last year against four men, including two officers in Russia’s Federal Security Service, for their roles in the theft of 500 million Yahoo accounts.

One of them, Karim Baratov, a Canadian citizen born in Kazakhstan, pleaded guilty late last year to charges related to helping Russian intelligence agents break into email accounts as part of a massive 2014 breach.

Baratov was expected to be sentenced on Tuesday for his role in the Yahoo hack.

During its investigation into the 2014 breach, Yahoo uncovered a separate 2013 breach that compromised all 3 billion of its accounts, by far the largest known breach of consumer information.

Cyber breach disclosures have drawn intense scrutiny after credit reporting agency Equifax Inc announced last year that personal information on nearly 150 million Americans had been compromised.

The SEC has filed charges against a former Equifax executive for alleged insider trading on the information.

In February, the regulator published new guidance on how and when firms should disclose cyber security risks and breaches.

The investigation into Yahoo is continuing and the SEC has yet to make a decision about the role or culpability of individuals, the SEC said.

In a Tweet on Tuesday, Democratic U.S. Senator Mark Warner applauded the SEC action.

“Holding the company accountable is important, and I hope others will learn you can’t sweep this kind of thing under the rug.”

Reporting by Sarah N. Lynch in Washington and Dustin Volz in San Francisco; Additional reporting by Michelle Price in Washington and Nate Raymond; Editing by Richard Chang

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