Corporate data breaches have become weekly occurrences. During the first 9 months of 2019, more than 7.9 billion data records were compromised, a 33% increase over the same period in 2018.[1] We’re only 9 weeks into 2020 and there have already been 12 high profile breaches at companies including Estee Lauder, Fifth Third Bank, Microsoft, MGM Resorts, and Walgreens.[2]

The recent $149 million settlement in Equifax coming after the $80 million settlement with Yahoo in 2018 confirms the viability of these types of securities class actions. It enhances the prospect of settlements in similar cases already filed and increases the likelihood of more cases being filed in the future. This will be particularly true where the data breaches are massive in scope, involve sensitive personal information, and company share prices respond significantly when the breaches are publicly disclosed.

In Equifax, the shareholder recovery is just one aspect of the company’s total cost to resolve the incident. It also paid more than $1.1 billion in other lawsuits and proceedings by consumers and by state and federal regulators and government agencies. It spent another $1.7 billion or so on internal improvements, as well as an undisclosed amount for legal fees and defense costs.[3]

Companies respond to judgments and settlements by changing their behavior and in the wake of data breach scandals, implementing security improvements that make them better investments. Other companies do similar things to minimize their risk of suit.  Investors should applaud this result. In addition to owning shares, they consume the products and services these companies offer, so their data is as vulnerable and likely to be compromised as that of non-investors.

More aspects of our lives are now online. Social media doesn’t just take what we give it – it gathers and compiles detailed profiles on us: where we are and go, what we see and do, our financial means and what we do with it, our personal and political views, and so much more. Companies are becoming greater repositories for the most intimate aspects of our being including facial recognition, biometrics, voice recordings, fingerprints, DNA, and medical records. These are all stored digitally and are vulnerable to being hacked.

The Equifax settlement is a good reminder to companies that they must safeguard this information to the maximum extent possible or suffer a serious financial consequence. Without that reminder, investors have much more to lose than just the money invested in company securities.

Sources: [1] Steve Turner, Data Breach & Technology, Personal (1/3/20, posted on the Identity Force website); [2] Id; [3] Kevin LaCroix, Equifax Data Breach-Related Securities Suit Settled for $149 Million (2/17/20, The D&O Diary).

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