Illuminating Material Breach Through Empirical Evidence: Facilitating Timely Disclosure, Compliance, and Remediation

The landscape of cybersecurity disclosure has shifted dramatically with the recent implementation of the SEC's cybersecurity incident reporting rules. Now, public companies face the crucial task of determining whether a cyberattack rises to the level of "materiality," necessitating prompt public disclosure within four business days. But what exactly constitutes a "material" breach? Navigating this murky terrain requires a nuanced understanding of the rule's requirements, the traditional legal standard of materiality, and the practical considerations companies must face.

The Rule's Mandate:

At its core, the SEC's rule mandates disclosures on Form 8-K for any "material" cybersecurity incident. Companies must assess the nature, scope, and potential impact of an attack, considering both quantitative and qualitative factors. The rule emphasizes a "reasonable investor" perspective, asking whether the information would likely influence investment decisions or alter the total mix of information available to investors.

Materiality Under the Microscope:

While the rule provides a framework, defining materiality in the context of cybersecurity remains a subject of intense debate. Traditional legal interpretations, drawing from Supreme Court rulings, focus on the potential impact on:

• Financial condition: Did the breach compromise sensitive financial data, lead to significant financial losses, or disrupt critical financial systems?

• Operations: Did the attack cripple core business operations, disrupt manufacturing or supply chains, or damage critical infrastructure?

• Reputation and investor confidence: Could the breach tarnish the company's reputation, lead to lawsuits, or erode investor confidence, impacting stock prices?

Beyond the Binaries:

However, applying these principles to complex cyberattacks is not always straightforward. Companies must move beyond simple yes-or-no assessments and consider:

• The type of data breached: Sensitive customer data, trade secrets, or intellectual property breaches may be inherently material, even if financial losses are minimal.

• The scope of the attack: Widespread attacks affecting millions of users may be significant, even if individual impacts are small.

• Secondary and tertiary effects: Even seemingly contained breaches can trigger legal ramifications, regulatory scrutiny, or reputational damage that could snowball into materiality.

Vigilocity’s Empirical Evidence Intelligence:

As a result of this challenge, Vigilocity has developed the Mythic platform. Mythic sifts through vast amounts of malicious data, identifying and prioritizing confirmed security breaches based on their material impact.

The platform's robust capabilities not only detect breaches but also offer valuable insights into the material impact of these incidents, empowering security, audit, and regulatory teams to make informed decisions and respond swiftly. Vigilocity’s empirical intelligence includes:

• Date and time of breach

• Source IP (Victim)

• Destination IP

• Country (Victim Location)

• Port/Protocol

• Payload (Data exfiltrated by malware/implant)

• Vital Stats  (machine name, user name, OS, application data, file paths, etc.)

• Company (Victim)

• Company Domain

• Threat (Malware/Malicious Implant)

With Vigilocity’s Mythic Platform, materiality of breach can be quickly determined based on what data has been successfully exfiltrated from the victim organization - without the need for any hardware, software or configuration changes. In the image above, a malicious Remcos (https://breakingsecurity.net/remcos/) implant has successfully exfiltrated a critical and materially impactful Excel file from a victim organization.

Practical Considerations:

Determining materiality within the tight four-day timeframe adds another layer of complexity. Companies must develop robust incident response protocols with clear escalation procedures for evaluating breaches. This includes involving legal counsel, cybersecurity experts, and senior management in timely assessments. The availability of timely intelligence as shown above can dramatically increase the velocity of decision and action.

Transparency vs. Competitiveness:

The rule raises concerns about striking a balance between transparency and maintaining a competitive edge. Disclosing vulnerabilities might attract opportunistic attackers, while withholding material information can expose companies to legal and reputational risks. This necessitates proactive cybersecurity measures, effective incident response plans, and clear communication strategies.

The Road Ahead:

The SEC's cybersecurity disclosure rules are a bold step towards ensuring investor protection in the digital age. However, the lack of a bright-line definition for materiality leaves companies grappling with ambiguity. As legal precedents and enforcement actions unfold, companies must constantly evaluate their cybersecurity posture, incident response protocols, and disclosure practices to navigate the evolving landscape of cybersecurity disclosure. Vigilocity will continue to deliver evidence-based intelligence of material breaches to regulatory groups as well as facilitate critical disclosure and decision support to those impacted.