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Was Chrysler’s Vehicle Hacking Risk an SEC Disclosure Reportable Event?

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[photo: K2D2vaca via Flickr]

[photo: K2D2vaca via Flickr]

Remember the data breach at JPMorgan Chase, exposing 76 million accounts to “hack-mapping“? Last October, JPMorgan Chase publicly disclosed the intrusion and exposure to investors in an 8-K filing with the Securities and Exchange Commission. The statement complied with the SEC’s CF Disclosure Guidance: Topic No. 2 – Cybersecurity.

Other companies whose customers’ data have been exposed also disclosed breaches in 8-Ks, including Target, TJX Companies, Heartland Payment, EMC and Google. (Firms NASDAQ, Citigroup and Amazon have not.)

Disclosure of known cybersecurity threats or attacks with potential material risks allows investors to make informed decisions. Stock share pricing will fluctuate and reflect the true market value once risk has been factored by investors — and not remain artificially high.

Fiat Chrysler America (FCA; NYSE:FCAU) has known for nearly a year about the risk that Chrysler vehicles could be hacked remotely, according to Fortune magazine Thursday.

Yet to date no filing with the SEC has been made, disclosing this specific cyber risk to investors, customers, and the public.

The SEC’s Disclosure Guidance, though, is just that — guidance. There aren’t any firm rules yet in place, and the guidance itself was published in October 2011. A lot has happened and changed about technology and cybersecurity risks since then; the guidance has not reflected the increasing threats and attacks to business’ data.

Nor does the SEC’s guidance distinguish between cybersecurity threats to service products (like banking services), versus hardlines or manufactured goods (like automobiles which offer software as an additional, non-essential feature). The software industry’s chronic security patching confuses any distinction; should software companies likewise include all security patches in their SEC filings, or continue as they have without doing so? It’s easy to see how revelations about Adobe Flash after Hacking Team was hacked have materially hurt Adobe and all companies relying on Flash — yet Adobe hasn’t released a statement at its website. (Only a statement addressing the 2013 threat to customer accounts is posted.)

Are financial services firms any more obligated than software firms? Are automobile companies, which claim ownership of on-board software, any more obligated than software companies? Read more →