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Financial Services Law Insights and Observations

New York AG reaches agreement with online retailer to resolve data breach

State Issues State Attorney General Enforcement Privacy/Cyber Risk & Data Security

State Issues

On May 18, the New York attorney general announced an agreement with an online water filtration retailer to resolve an investigation into a 2019 data breach that allegedly compromised the sensitive personal information of roughly 324,000 customers. According to the AG, the data breach impacted the retailer’s website for nearly a year, and compromised information including credit card holders’ names, billing addresses, expiration dates, and security codes. The data breach occurred after attackers exploited a known vulnerability in the retailer’s online checkout process that the retailer had not patched. After a credit card payment system management company notified the retailers of suspicious activity, the retailer conducted an internal investigation that “erroneously concluded” that no breach had occurred. After additional reports of compromise, a credit card company asked the retailer to hire a forensic investigator to review the retailer’s systems, and it was this forensic investigation that ultimately discovered “conclusive evidence” of the breach.

Under the terms of the assurance of discontinuance, the retailer is required to pay a $200,000 fine, half of which is suspended unless the retailer is found to have “materially misstated its financial condition.” In addition, the retailer is required to adopt several security measures, including (i) creating a comprehensive information security program; (ii) designing an incident response and data breach notification plan to encompass “preparation, detection and analysis, containment, eradication, and recovery”; (iii) incorporating personal information safeguards and controls, “including encryption, segmentation, penetration testing, logging and monitoring, virus protection policy, custom application code change reviews, authentication policy and procedures, management of service providers, and patch management”; and (iv) agreeing to conduct third-party security assessments over the next five years.

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