Yesterday we reported on the incredibly appalling report from Equifax that the personal data of nearly 143 million Americans was compromised by hackers. The data breach is the largest in U.S. history; nothing has ever happened on this scale before.
Criminals exploited a U.S. website application vulnerability to gain access to certain files. Based on the company’s investigation, the unauthorized access occurred from mid-May through July 2017. The company has found no evidence of unauthorized activity on Equifax’s core consumer or commercial credit reporting databases.
The information accessed primarily includes names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers. In addition, credit card numbers for approximately 209,000 U.S. consumers, and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers, were accessed. As part of its investigation of this application vulnerability, Equifax also identified unauthorized access to limited personal information for certain UK and Canadian residents. Equifax will work with UK and Canadian regulators to determine appropriate next steps. The company has found no evidence that personal information of consumers in any other country has been impacted.
As bad as this situation is, it appears that it may be even worse than initially realized — three senior executives of Equifax sold off $1.8 million in stock right before the announcement, Bloomberg is reporting.
That gives the indication of insider trading, the practice of using confidential information to one’s advantage in the marketplace.
While the company claims that the executives did not have knowledge of the data breach when they sold the stock, that’s an awfully convenient time to sell a piece of the company.
The three “sold a small percentage of their Equifax shares,” Ines Gutzmer, a spokeswoman for the Atlanta-based company, said in an emailed statement. They “had no knowledge that an intrusion had occurred at the time.”
That claim is awfully fishy. These are senior executives of a credit reporting agency, one of the largest in the country. The notion that they did not have knowledge of the breach or the inevitable announcement is more than a bit untrustworthy.
“I don’t know how the board will allow these executives to continue in their positions,” said Bart Friedman, a senior counsel at Cahill Gordon & Reindel LLP, who advises boards on matters including corporate compliance and enforcement challenges. “Yes, they should have a careful investigation and have an independent law firm interview the executives and review their emails and determine what they knew and when, but the end result is likely clear.”
The executives sold the stock just a few days after the breach was discovered, according to Bloomberg.
The credit-reporting service said earlier in a statement that it discovered the intrusion on July 29. Regulatory filings show that on Aug. 1, Chief Financial Officer John Gamble sold shares worth $946,374 and Joseph Loughran, president of U.S. information solutions, exercised options to dispose of stock worth $584,099. Rodolfo Ploder, president of workforce solutions, sold $250,458 of stock on Aug. 2. None of the filings lists the transactions as being part of 10b5-1 scheduled trading plans.
The timing is just too perfect for it to be a coincidence. This kind of special wheeling and dealing with confidential information is what sent Martha Stewart to jail several years ago.
Stewart sold close to 4000 shares of biopharmaceutical company ImClone Systems based on information received from Peter Bacanovic, a broker at Merrill Lynch. Bacanovic’s tip came after ImClone Systems’ chief executive officer (CEO), Samuel Waksal, sold all his shares of the company. This came around the time ImClone was waiting on the Food and Drug Administration (FDA) for a decision on its cancer treatment, Erbitux.
Shortly after these sales, the FDA rejected ImClone’s drug, causing shares to fall 16% in one day. The early sale by Stewart saved her a loss of $45,673. However, the sale was done based on a tip she received about Waksal selling his shares, which was not public information.
Equifax may have an insider trading case being filed against them soon.