Nortel Networks: Wolf In The Henhouse, Guard Dog Fast AsleepKeeping stock and patent price at premium trumps disclosure at Nortel Networks
If you’re a wolf that wants to go undetected in hunting for hens or their eggs on a midnight raid of Farmer Brown’s nearby chicken coop, you generally have only two choices. Try slipping by the sleeping guard dog and hope you don’t get caught, or walk right up to and past his vigilant counterpart, all the while knowing full well he’s not going to wake the sleeping farmer. Not with a bark, a howl, or even a growl. If you’re lucky, your first choice may work. Or you can attempt the second approach and be guaranteed the opportunity to wipe the coop clean of both hens and their eggs.
That’s the analogy I summoned in reading about the recent Wall Street Journal report that hackers, reportedly from an IP address located in China, breached bankrupt Nortel Networks security as far back as 2000 and stole seven passwords from the company's top executives -- including the CEO -- which granted them widespread access to the entire Nortel network.
Citing Brian Shields, a former Nortel employee who led an internal investigation into the security breaches, the Journal reported the security breaches dated as far as back as at least 2000, and malware planted by the hackers made it possible to steal intellectual property, including technical papers, R&D reports, business plans, employee emails, and other documents.
Shields, who worked for Nortel for 19 years, claims that the company discovered the hack in 2004 when it was determined that some PCs were regularly sending sensitive data to an IP address based in Shanghai.
Nortel responded by changing affected passwords, but wound down an internal investigation into the breach after six months due to a lack of progress.
Shields claims that he made recommendations to management about how to better protect the company's networks, but he was ignored.
The timing of this disclosure -- Nortel recently receiving clearance by the Department of Justice to sell $4.5 billion worth of patents to Apple, Microsoft and RIM -- is not only revealing but also problematic. Would any of these companies have paid so much for the patents if they’d known the data was likely compromised? And even more troubling, if the patents were known to have been potentially stolen or compromised, wouldn’t they (e.g., Nortel) have to have reported that? I’ll grant you any bills, much less legislative enforcement around data breach disclosures laws, at least in 2000, were still years away, still, why was Nortel’s accountability and due diligence to shareholders and employees alike MIA, even DOA?
One possible source of subterfuge may well have been stock price itself.
As reported by Brian Prince in Dark Reading, who interviewed Jacob Olcott, a principal in cybersecurity practice at security analysis firm Good Harbor Consulting, “the average investor is starting to understand the link between network security and future revenue. The more a company can keep attackers out of its networks, the better chance it can deliver business. Nortel investors may be asking themselves whether the decade of intellectual property and trade secret theft helped drive the company out of business.”
In other words, keep the breach out of the headline and glare (e.g. “the CNN moment”) and the stock price remains stable, business goes on as usual and no one is the wiser.
As a veteran security professional who’s seen my share of companies play (or try to play) their get-out-of-jail card when their hands have been caught in the proverbial cookie jar I think Nortel’s response to its known breach is shameful. It doesn’t even look like they really cared. Not about their reputation or the integrity of their intellectual property and not even to their suitors who probably went into the patent acquisition process with their respective eyes and balance sheets wide open, unknowingly dealing with a player who kept all the cards close to the vest and a deck that was always stacked in its favor.
Look, I’ve never been much for more government intervention in our lives and by no means am I letting Nortel off the hook here, (and with former Nortel CEO Frank Dunn currently being tired for fraud, that’s never going to be an option, anyway). However, it’s my sincere hope that the data breach disclosure laws already codified on a state by state basis (46 at last count) and the federal data protection laws making their way through Congress will force companies both privately-held and publicly-traded to step up to the plate, be accountable and take responsibility when breaches happen.
Much like a dependable guard dog that always sleeps with one eye open, ready to lock up with and turn aside a stealth wolf in order to protect his valued charges.
Chester Wisniewski is a senior security adviser at Sophos Canada.