The Securities and Exchange Commission (SEC) has announced charges against software company SolarWinds Corporation and its chief information security officer (CISO), Timothy G. Brown, for “fraud and internal control failures relating to allegedly known cybersecurity risks and vulnerabilities.”
In 2020, SolarWinds announced it had been hacked and that its compromised software channel was used to push out malicious updates onto 18,000 of its Orion platform customers. The nearly two-years long cyberattack was dubbed SUNBURST.
The complaint by the SEC, filed in the Southern District of New York, alleges that during the cyberattack, and perhaps before and after too, SolarWinds and Brown defrauded investors by overstating SolarWinds’ cybersecurity practices, as well as understating or failing to disclose known risks.
The SEC claims that SolarWinds “misled investors by disclosing only generic and hypothetical risks at a time when the company and Brown knew of specific deficiencies in SolarWinds’ cybersecurity practices as well as the increasingly elevated risks the company faced at the same time.”
A 2018 presentation based on an internal assessment which was shared internally, including with Brown, stated that SolarWinds’ remote access set-up was “not very secure” and that someone exploiting the vulnerability “can basically do whatever without us detecting it until it’s too late.”
In June 2020, while investigating a cyberattack on a SolarWinds customer, Brown wrote that it was “very concerning” that the attacker may have been looking to use SolarWinds’ Orion software in larger attacks because “our backends are not that resilient.”
Instead of dealing with these problems, SolarWinds and Brown “engaged in a campaign to paint a false picture of the company’s cyber controls environment, thereby depriving investors of accurate material information.”
Even the disclosure about the SUNBURST attack was allegedly incomplete. The SEC’s complaint alleges that SolarWinds and Brown violated the antifraud provisions of the Securities Act of 1933 and of the Securities Exchange Act of 1934; SolarWinds violated reporting and internal controls provisions of the Exchange Act; and Brown aided and abetted the company’s violations.
The complaint seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and an officer and director bar against Brown.
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