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Publication

March 3, 2017Client Alert

Executives and Board Members Could Face Liability for Data Breaches

By now, most everyone is aware that Yahoo was hacked in both 2013 and 2014 and had names, passwords, and other account data of between 500 million and one billion of its users stolen. Following the breach, various class action lawsuits brought against Yahoo by consumers and small business users of Yahoo ensued. The stolen data and lawsuits also caused Verizon to reduce its offer to purchase Yahoo by $350 million. Unfortunately for Yahoo, its inability to protect private account data has led to additional negative consequences.

In late February 2017, a group of Yahoo shareholders, guided by the Oklahoma Firefighters Pension and Retirement System, sued Yahoo, as well as some of its executives and board members, including the chairman of its Board of Directors, co-founder, and current CEO, for breach of their fiduciary duty to the shareholders stemming from the stolen account data. Although the complaint is sealed (and thus unavailable to the public), the lawsuit, which appears to be the first of its kind, seems to assert that Yahoo and its executives breached their fiduciary duty to shareholders by failing to disclose the data security breaches to Yahoo account holders.

This lawsuit will be one to keep an eye on to see whether a failure to properly handle a data breach, and possibly even the data breach itself, can be considered a breach of a fiduciary duty to shareholders. Although this case appears to be the first of its kind, if it continues moving forward, it will undoubtedly spur like cases for other similarly situated entities that have suffered a security breach.

Other businesses that have been hacked and had personal account data stolen may be next in line for similar shareholder lawsuits. As such, the shareholder suit against Yahoo and its executives is yet another warning of how important it is for business to approach the need to properly protect personal data seriously. Whether its employee or customer information, businesses need to be on their guard and prepared to prevent and handle data breaches.

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