Large-scale data breaches can give rise to a host of legal problems for the breached entity, ranging from consumer class action litigation to congressional inquiries and state attorneys general investigations. Increasingly, issuers are also facing the specter of federal securities fraud litigation.
The existence of securities fraud litigation following a cyber breach is, to some extent, not surprising. Lawyer-driven securities litigation often follows stock price declines, even declines that are ostensibly unrelated to any prior public disclosure by an issuer. Until recently, significant declines in stock price following disclosures of cyber breaches were rare. But that is changing. The recent securities fraud class actions brought against Yahoo! and Equifax demonstrate this point; in both of those cases, significant stock price declines followed the disclosure of the breach. Similar cases can be expected whenever stock price declines follow cyber breach disclosures. Continue reading →
The United States Court of Appeals for the Third Circuit recently ruled that a data breach class action may proceed on the basis of a Fair Credit Reporting Act (FCRA) violation alone, even where the putative class members do not allege that they were actually harmed by the breach. The ruling, which both relies on and distinguishes the Supreme Court’s recent analysis of FCRA standing in Spokeo v. Robins, suggests that at least in the Third Circuit, “injury” from a data breach may be presumed from the fact of the breach itself. This, in turn, could have the effect of expanding potential liability for any consumer-facing entity that suffers a breach.