Cyber Risk

The New Wolves of Wall Street

A new class of cyber criminals is targeting companies’ private information.
By: | July 5, 2016 • 10 min read
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Cyber security measures advanced by leaps and bounds over the past decade. Unfortunately, cyber criminals sharpened their game even more.

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As it gets tougher each day to slip in through back doors, hackers turned their talents toward carving out side windows. They adapted, developing new business models and finding smarter ways to profit off of the backs of organizations.

Credit card information, personally identifiable information and protected health information are all still in demand, but they’re no longer the only treasures that cyber criminals are after.

“It is no longer hacking merely for a quick payout. It is hacking as a business model.” — Preet Bharara, U.S. attorney

They want your trade secrets. They want your intellectual property. They want to eavesdrop on your most sensitive financial activities so they can leverage that information on the stock market — shorting stock, investing in stock, timing stock to their advantage.

The cyber security challenge is intense, because it’s hard to get a handle on. These crimes are being perpetrated by various groups of actors with different motivations. They’re being executed using a broad array of techniques that include any combination of malware, phishing and social engineering.

They could be coming at you from anywhere in the world. And it’s not even necessarily your systems that are being attacked directly. It could be your vendors, your partners — any organization that has a connection to your confidential information.

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Last August, the SEC filed charges in a fraud scheme involving two Ukrainian hackers who broke into multiple newswire services to steal unreleased corporate earnings announcements. The hackers shared the information with 30 people who traded on it, generating more than $100 million in illegal profits.

The following November, federal prosecutors disclosed the existence of a sizable worldwide hacking scheme, involving more than 100 people in a dozen countries.

Among the other offenses listed in the 68-page indictment, the crime ring orchestrated elaborate pump-and-dump stock schemes and traded on stolen corporate information, pocketing hundreds of millions along the way.

“It is no longer hacking merely for a quick payout,” U.S. Attorney Preet Bharara said in announcing the indictment.

“It is hacking as a business model.”

M&As Increase Vulnerabilities

The rise of worldwide M&A activity turned the stock market into a profitable playground for hackers — those working for either side of the transaction or outside parties looking for a way to profit illegally from the transaction.

2015 was record-breaking year for M&As, topping $5 trillion in volume globally for the first time. Half of the targeted companies were based in the U.S.

2016 is expected to see continued high level of activity. That leaves plenty of opportunities for illegal gains.

“If outsiders are aware of the negotiations going on, they can put upward pressure on the stock.” — Bill Sweeney, chief technology officer, BAE Systems Applied Intelligence

“You can disrupt an M&A a lot of different ways,” said Bill Sweeney, chief technology officer at BAE Systems Applied Intelligence.

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“One way is you can publicize that it’s going on sooner than people would like.

“M&A is a very sensitive topic because it’s very price dependent. Companies will walk away from deals because they can’t narrow the gap between $25 and $30 dollars a share.

“If outsiders are aware of the negotiations going on, they can put upward pressure on the stock. So when somebody thought they were going to be getting a 25 percent premium [against their stock], but now because of the upward pressure, they’re only getting a 15 percent, why would they sell?”

During a “Cyber Security: The Achilles Heel of M&A Due Diligence,” webinar in April, Brian Finch, a partner with Pillsbury Winthrop Shaw Pittman LLP, outlined the recent case of a company that was courted by international suitors.

The company was certain that it was healthy, but repeated audits showed it operated at a loss. An investigation revealed that the company was under attack, with hackers corrupting information to decrease the value of the company.

When the company value bottomed out, a foreign investor swooped in with a lowball offer.

Will Glass, threat intelligence analyst, FireEye

Will Glass, threat intelligence analyst, FireEye

Even if hackers don’t outright alter the data, they’re still finding ways to leverage it.

“We’ve seen China-based groups … compromising companies across various industries, stealing information that would give them insight into what the best price for the company might be,” said Will Glass, threat intelligence analyst at FireEye.

“We’ve seen groups that are sponsored by nation states — or that we believe are sponsored by nation states — conducting activity leading up to and even during mergers and acquisitions.”

One high-profile case traced to China was the attempted $40-billion takeover of Canada’s Potash Corp. by Australian natural resources company BHP Billiton.

While the deal fell through for apparently unrelated reasons, an investigation revealed that a Chinese effort to derail the deal involved attacks on seven law firms, as well as Canada’s Finance Ministry and the Treasury Board.

Those third-party attacks are an area of serious concern in terms of intellectual property and M&As, said Kevin Kalinich, global practice leader, cyber/network risk, Aon Risk Solutions.

“The accounting firms and financial advisers are above average in IT security and protection of confidential information,” he said.

“But law firms, surprisingly enough, are below average.”

The Human Element

What’s complicating matters from a risk management standpoint is that attacks take various forms and are typically multi-layered. Spearphishing and social engineering often play a major role because they are consistently successful, despite companies’ attempts to alert employees to the dangers.

Toby Merrill, global cyber risk practice leader, Chubb

Toby Merrill, global cyber risk practice leader, Chubb

“The way of the hacker has always been to go after the industry or the exposure where there’s the lowest hanging fruit,” said Toby Merrill, leader of Chubb’s global cyber risk practice.

And in many companies, that means employees. Even a staffer savvy enough to question a wire transfer request might still be duped by a login scheme that looks innocuous or seems relevant to his job.

“What’s happening is that hackers are spoofing emails,” said Sweeney.

“They’re spoofing CFOs and they’re spoofing other C-level executives and pretending to be either a consultant or part of the review process … trying to extract that sensitive information by [sending] an email that looks like it’s from the CEO, that says, ‘Hey what’s the latest on our deal with company X?’ And the guy [replies] but it’s not going to the CEO; it’s going to the guy who spoofed it.”

It’s not easy to spot spoofed email, he added.

“It looks like an email from your company, with your header. It looks like it’s from your domain. It’s only if you open it up and look at the source code that you can see what’s being shown is not the actual domain its coming from and if you hit reply it’s going to go to somewhere else.”

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It also works because it’s not random. Hackers do their homework and understand how their targets operate. They know when to send emails and who to send them to, and what internal procedures are in place so that they can get around them.

FIN4, a large cyber crime ring tracked extensively by FireEye, was so good at duping people that it didn’t even bother using malware.

It focused on capturing usernames and passwords to email accounts. FIN4 would craft convincing phishing lures, most often sent from other victims’ email accounts and through hijacked email threads.

Spoofing emails have successfully snared some risk managers, CTOs and CFOs.

According to FireEye’s Glass, the group would “send an email to someone in a target company and it would say, ‘Hey check out this financial investment forum — there’s some guy on here badmouthing the company. You might want to take a look.’ ”

Hackers set it up so that when the link was clicked, it would request their email login and password in order to view the content. The hackers could then take those login credentials and continue their campaign, both within the organization and laterally to external organizations.

It’s worth noting that risk management is directly in the crosshairs for this kind of attack.

C-suite executives, legal counsel and anyone involved in the risk, regulatory or compliance functions of a company are prime targets. If you have any connection to sensitive information, they’re looking for a way to get their hands on it.

And experts say that such attacks have successfully snared some risk managers, CTOs and CFOs.

Coverage Confusion

There is plenty that still needs sorting out in terms of the coverage options available to insure against such losses. The toughest pill to swallow, said Kalinich, is that the loss of value is not covered by cyber insurance, nor is it covered by any other type of insurance.

Kevin Kalinich, global practice leader, cyber risk, Aon Risk Solutions

Kevin Kalinich, global practice leader, cyber risk, Aon Risk Solutions

“That’s a really important factor,” he said.

“The actual value of a trade secret, the actual value of a patent, the actual value of intellectual property, is not covered. [In the case of an M&A loss,] not even a crime policy would cover that.”

A D&O policy might be triggered if the stock dropped following a failed M&A, but a company would be challenged to relate the event to a cyber hack, or to quantify the impact of the hack on the failed transaction, experts said.

Still, said Kalinich, there are certainly losses that could be covered by cyber insurance, especially if an attack were to result in business interruption, or if it caused damage to the system that required remediation, or forensic investigation.

Culture of Awareness

At a minimum, any company engaging in mergers or acquisitions activity should separate that information from the rest of the corporate environment, said experts. M&A activity should have a segmented network and a dedicated file server, and all documents should be encrypted.

BAE’s Sweeney also recommended that related communications with people outside of the organization be restricted to a VPN for added security.

Additionally, all third-party involvement should receive a high level of scrutiny.

Said Sweeney, “You’ve got to look at everybody who’s going to have access to the information, and say, ‘When was the last time you had a cyber assessment? How can we make sure that you’re not going to be the conduit through which people find out this information?’

“That’s where people are getting hacked,” he said. “They’re not getting hacked right in the center. They’re getting hacked by the people on the periphery who are trying to do their best.”

Internally, Glass said, it’s a good practice to follow the law of least access — give people access to the information that they need to do their jobs and nothing more. But that’s just a start.

Hackers figured out that humans are easier to crack than code, so comprehensive staff training should be the foundation of a solid cyber security strategy.

Some companies use internal phishing campaigns to help manage the human side of the risk. Employees who are duped and click on bogus links are redirected to a page revealing their mistake and letting them know they’ll be required to do mandatory extra training.

Nick Rossman, senior program manager, threat intelligence, FireEye

Nick Rossman, senior program manager, threat intelligence, FireEye

Experts universally agreed that these risks cannot be foisted onto the laps of IT or risk management alone. Boards must be educated and involved, and there must be enterprise-wide collaboration for a company to develop any level of effective defense against cyber espionage.

Make sure you’re speaking the board’s language, said Nick Rossman, senior program manager, threat intelligence with FireEye. “They don’t care about malware, they just want to know what you’re asking them to invest.

“So I think it’s easiest when you have a big scope of data and a partner who can get you a strategy forecast” to help justify decisions about investments, he said.

“In the past, [IT and data systems] were considered kind of a back-office priority, kind of like having enough printer toner or enough chairs,” said FireEye’s Glass.

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“It was an enabling function of the company but not really core to the business. Now every company is an IT company whether they realize it or not.

“Maybe Coca-Cola keeps its recipe in a safe somewhere, but everybody else, for the most part, is keeping their information online or in databases or even in the cloud, because the efficiencies that can be derived from that model are so great.

“In order to make sure that those efficiencies continue, we’ve got to make sure that companies are looking at all the risks inherent with putting all of that information online.” &

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Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]
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Column: Workers' Comp

Fraud as a Ticket Out

By: | April 28, 2016 • 2 min read
Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.

News stories and press releases from insurance departments nationwide regularly disclose the prosecution of prison guards for workers’ compensation fraud.

I often wondered why guards, obviously familiar with prison horrors, would risk incarceration.

The answer recently came during a conversation with a prosecutor regarding the conviction of Mark Navarrete, whose workers’ comp fraud case offers an extreme example of how work environments impact behavior.

Navarrete, a 12-year Santa Clara County Sheriff’s Office veteran, worked as a correctional deputy.  The California county’s beleaguered jail system suffers horrendous problems.

Three of its guards, for example, currently face murder charges for beating a mentally ill inmate to death.

The day after I spoke with Santa Clara County Deputy District Attorney David Soares, video surfaced showing about 20 inmates pummeling each other inside the county’s main jail. The brawl erupted when one inmate brushed against another. The video shows what jail deputies face daily, the county sheriff said at a news conference.

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Guards are responsible for policing inmates who grow increasingly volatile every day they are incarcerated. Fifty of them may share a single toilet, Soares said. It’s an awful work environment, leaving jailers desperate for an escape route and time away from the job.

Navarrete’s escape plan had several problems. A co-worker reported seeing a text with Navarrete bragging that a softball injury would become a work accident. A softball field security camera captured video of Navarrete injuring his arm while swinging for an inside pitch, and hospital documents revealed a timeline that refuted his workplace claim.

“I wanted to send a message that if individuals were encouraging the fraud they were going to go down too.” — David Soares, deputy district attorney, Santa Clara County

With widespread problems at the county jail, Soares dug deeper into Navarrete’s case to determine whether other deputies encouraged him in a conspiracy to defraud their employer.

“I saw this as a potentially endemic problem because of the issues within the jails and because we had recently had this homicidal death in the jail,” Soares said.  “I wanted to send a message that if individuals were encouraging the fraud they were going to go down too.”

In the end, only Navarrete was prosecuted. He pled no contest, receiving a 120-day jail sentence, but was allowed to serve it at home with electronic monitoring. He must also pay nearly $23,000 in restitution.

Inhospitable work environments don’t encourage claimants to hurry and return to work. As Navarrete showed, they even encourage some workers to rationalize committing insurance fraud.

Navarrete’s work environment, awful as it is, doesn’t justify defrauding his employer. But it does offer an example, albeit an extreme one, of the workplace environment’s potential impact on workers’ comp costs. &

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Electronic Waste Risks Piling Up

As new electronic devices replace older ones, electronic waste is piling up. Proper e-waste disposal poses complex environmental, regulatory and reputational challenges for risk managers.
By: | July 5, 2016 • 4 min read
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The latest electronic devices today may be obsolete by tomorrow. Outdated electronics pose a rapidly growing problem for risk managers. Telecommunications equipment, computers, printers, copiers, mobile devices and other electronics often contain toxic metals such as mercury and lead. Improper disposal of this electronic waste not only harms the environment, it can lead to heavy fines and reputation-damaging publicity.

Federal and state regulators are increasingly concerned about e-waste. Settlements in improper disposal cases have reached into the millions of dollars. Fines aren’t the only risk. Sensitive data inadvertently left on discarded equipment can lead to data breaches.

To avoid potentially serious claims and legal action, risk managers need to understand the risks of e-waste and to develop a strategy for recycling and disposal that complies with local, state and federal regulations.

The Risks Are Rising

E-waste has been piling up at a rate that’s two to three times faster than any other waste stream, according to U.S Environmental Protection Agency estimates. Any product that contains electronic circuitry can eventually become e-waste, and the range of products with embedded electronics grows every day. Because of the toxic materials involved, special care must be taken in disposing of unwanted equipment. Broken devices can leach hazardous materials into the ground and water, creating health risks on the site and neighboring properties.

Despite the environmental dangers, much of our outdated electronics still end up in landfills. Only about 40 percent of consumer electronics were recycled in 2013, according to the EPA. Yet for every million cellphones that are recycled, the EPA estimates that about 35,000 pounds of copper, 772 pounds of silver, 75 pounds of gold and 33 pounds of palladium can be recovered.

While consumers may bring unwanted electronics to local collection sites, corporations must comply with stringent guidelines. The waste must be disposed of properly using vendors with the requisite expertise, certifications and permits. The risk doesn’t end when e-waste is turned over to a disposal vendor. Liabilities for contamination can extend back from the disposal site to the company that discarded the equipment.

Reuse and Recycle

To cut down on e-waste, more companies are seeking to adapt older equipment for reuse. New products feature designs that make it easier to recycle materials and to remove heavy metals for reuse. These strategies conserve valuable resources, reduce the amount of waste and lessen the amount of new equipment that must be purchased.

Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels.

For equipment that cannot be reused, companies should work with a disposal vendor that can make sure that their data is protected and that all the applicable environmental regulations are met. Vendors should present evidence of the required permits and certifications. Companies seeking disposal vendors may want to look for two voluntary certifications: the Responsible Recycling (R2) Standard, and the e-Stewards certification.

The U.S. EPA also provides guidance and technical support for firms seeking to implement best practices for e-waste. Under EPA rules for the disposal of items such as batteries, mercury-containing equipment and lamps, e-waste waste typically falls under the category of “universal waste.”

About half the states have enacted their own e-waste laws, and companies that do business in multiple states may have to comply with varying regulations that cover a wider list of materials. Some materials may require handling as hazardous waste according to federal, state and local requirements. U.S. businesses may also be subject to international treaties.

Developing E-Waste Strategies

Companies of all sizes and in all industries should implement e-waste strategies. Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels. That’s a complex task that requires understanding which laws and treaties apply to a particular type of waste, keeping proper records and meeting permitting requirements. As part of their insurance program, companies may want to work with an insurer that offers auditing, training and other risk management services tailored for e-waste.

Insurance is an essential part of e-waste risk management. Premises pollution liability policies can provide coverage for environmental risks on a particular site, including remediation when necessary, as well as for exposures arising from transportation of e-waste and disposal at third-party sites. Companies may want to consider policies that provide coverage for their entire business operations, whether on their own premises or at third-party locations. Firms involved in e-waste management may want to consider contractor’s pollution liability coverage for environmental risks at project sites owned by other entities.

The growing challenges of managing e-waste are not only financial but also reputational. Companies that operate in a sustainable manner lower the risks of pollution and associated liabilities, avoid negative publicity stemming from missteps, while building reputations as responsible environmental stewards. Effective electronic waste management strategies help to protect the environment and the company.

This article is an annotated version of the new Chubb advisory, “Electronic Waste: Managing the Environmental and Regulatory Challenges.” To learn more about how to manage and prioritize e-waste risks, download the full advisory on the Chubb website.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Chubb. The editorial staff of Risk & Insurance had no role in its preparation.




With operations in 54 countries, Chubb provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients.
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