The Securities and Exchange Commission's (SEC) credibility as an enforcer of cybersecurity requirements took a bit of beating this week after it disclosed a 2016 data breach that might have given intruders access to nonpublic information for illegal trading.

In brief comments buried in the middle of a long public statement on the agency's cybersecurity posture, SEC Chairman Jay Clayton tied the breach to a software vulnerability in the test filing component of the SEC's EDGAR system.

The breach was discovered and addressed at some unspecified time in 2016. But it wasn't until August 2017 that the SEC learned that the incident might have allowed the intruders to profit illegally through trading, Clayton said, without providing any additional details on how that might have happened. The vulnerability provided access to certain nonpublic information in EDGAR and was patched promptly after discovery, he noted.

EDGAR is an automated system for electronically collecting, validating, accepting, and forwarding disclosure documents from public companies that are required by US law to file with the SEC. On average, the EDGAR system receives and processes some 1.7 million electronic filings annually, a lot of which is publicly available data. Some of the typical data in EDGAR includes statements for IPOs and quarterly and annual reports. But some documents that companies might file voluntarily — such as the proposed sale of securities — may remain nonpublic.

"The EDGAR database contains or has the potential to contain the filings companies make that are labeled as private," says Chris Pierson, chief security officer and general counsel at Viewpost.

For instance, companies can make filings for mergers and acquisitions that they might want to keep private for a period of time. "These are the filings that a hacker would want to find and see as it indicates the intentions of a public company and can be translated into monetary reward," Pierson says.

The incident is the second one that the SEC has disclosed this year involving unauthorized access or misuse of its systems. In May, the SEC announced that it had filed fraud charges against a mechanical engineer who managed to make a fake regulatory filing on the agency's systems in an attempt to manipulate the prices of Fitbit's stock.

The almost complete lack of details surrounding the 2016 breach incident has resulted in some speculation over what might have happened and the true extent of the compromise.

The SEC's language surrounding the breach discovery and vulnerabilities sound intentionally vague, says Atiq Raza, CEO of Virsec Systems. "They are implying that as soon as the vulnerability was discovered, they patched it promptly using all due diligence," he says.

"But this begs more questions: discovered by whom and when?" he says. "It may well be that the SEC discovered an unpatched server that was being exploited, for an unknown, probably long period, and only then took steps to apply critical patches."

Ilia Kolochenko, CEO of Web security firm High-Tech Bridge, says the vagueness of the SEC's disclosure is sure to provoke speculation about nation-state involvement or actions by known cybercrime groups.

"In the financial world, even a press release can make you millions if you get it before everybody else does," Kolochenko says. "In the Equifax situation, victims may be attacked to steal a couple of hundreds of dollars on average, while in this breach smart attackers could potentially make huge amounts of money at the expense of unaware honest investors."

Clayton's disclosure pertaining to an incident that happened back in 2016 has also raised some questions about the SEC's own breach notification obligations.

But some executives such as Jeremiah Grossman, head of security strategy at cybersecurity firm SentinelOne, says the apparent lag is not all that surprising.

"There's no legal obligation I'm aware of for the SEC to ever disclose this kind of breach, or to notify the parties whose data was compromised," Grossman notes. "We're talking EDGAR data, not PII. That might be one possible explanation."

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