“FTC gives two companies a slap on the wrist after appalling hacks”

A story on ZDNet is headlined, “FTC gives two companies a slap on the wrist after appalling hacks.” That headline may be true as far as it goes, but it’s a bit unfair or misleading, so let’s dive into this a bit more.

Catalin Cimpanu reports:

The US Federal Trade Commission has agreed to settle two legal cases against two companies that suffered catastrophic hacks in 2016.

Both got the equivalent of a slap on the wrist, despite having appalling security measures, not using any type of encryption, and storing data in plaintext, which, in turn, allowed hackers to steal millions of user records from each.

Read more on ZDNet.  As Catalin notes, the FTC’s filings in the matter do reveal details about the incident that had not been previously made public, and those details paint a terrible picture of ClixSense’s security.  Catalin then comments:

Despite the company’s obvious security failings and the damage done to consumers, the FTC has not come down hard on the company, which failed even at the most basic tasks of securing its infrastructure.

Yes, they did not come down as hard as we might like, but they didn’t really have many options in terms of penalties, as I explain below.

Coverage of the FTC’s enforcement actions, from the FTC’s perspective, can be found here for the i-Dressup case and here for the ClixSense breach.

Despite any frustration we might feel, the FTC is limited as to what it can impose in enforcement actions.  Under the federal law that the FTC is enforcing in the ClixSense action (Section 5 of the FTC Act), they cannot impose huge consequences for a first-time offender.  And if you read the FTC’s statement about the case, you will see that the enforcement is not for the breach itself, but for making promises to consumers that the company didn’t keep. In other words, the FTC took action because ClixSense engaged in deceptive practices by promising security it did not provide and it engaged in unfair practices by its failure to use reasonable security. And yes, they could have been hit with a monetary penalty as well as the other conditions in the proposed order, but it would not have been a large fine in any event because the FTC has no authority to impose huge fines for this type of thing.

The FTC recently published its updated maximum civil penalties for violations of various sections of Section 5. You can read it here. There has always been muttering about increasing the maximum amount of penalties, but so far, that has not happened, despite massive breaches like Equifax’s breach.

If Clixsense were to violate this settlement, though, the FTC could come down harder on them. All the current talk about Facebook facing a multi-billion dollar fine is predicated on them violating a previous consent order/settlement, and now much higher penalties can be – and are being – sought.

In the meantime, remember that ClixSense will be under a 20-year monitoring plan. That will cost it financially and be somewhat onerous. Don’t underestimate the value of those consequences.


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