WEBVTT - Bloomberg Law Brief: SEC Hack Shows Weakness in Edgar (Audio)

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<v Speaker 1>Well, now it's time for our daily Bloomberg Law Brief,

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<v Speaker 1>exploring legal issues in the news. And today Bloomberg Law

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<v Speaker 1>hos doing grosso at Michael Best discussed the hack of

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<v Speaker 1>the SEC's EDGAR document filing system, which granted hackers access

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<v Speaker 1>too closely guarded secrets from American companies. They speak with

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<v Speaker 1>Robert Hawckett, a professor at Cornell University Law School, and

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<v Speaker 1>Peter Henning, a professor Edwayne State University Law School. Peter,

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<v Speaker 1>the you know, most of the EDGAR system is publicly

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<v Speaker 1>available information. That's kind of the point, but there is

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<v Speaker 1>part of it that has some confidential information that apparently

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<v Speaker 1>is the subject of this hack. Explain exactly what it

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<v Speaker 1>is that got hacked into here. Well, the security breach

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<v Speaker 1>came through a portal that the SEC has so that

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<v Speaker 1>companies that recently went public could essentially take it for

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<v Speaker 1>a test drive and past materials on EDGAR. The requirement

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<v Speaker 1>is that whenever a company makes its disclosure quarterly or

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<v Speaker 1>annual earnings, that has to do that um immediately and

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<v Speaker 1>make it available to all investors at the same time.

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<v Speaker 1>So it was a way for them to test it UM.

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<v Speaker 1>But there are companies that will make filings. Uh. For example,

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<v Speaker 1>I p O s Now you can make what's essentially

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<v Speaker 1>a dark filing. You can put information in there that

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<v Speaker 1>isn't available to the public, that might have been available

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<v Speaker 1>to the hackers and would give them maybe some insight

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<v Speaker 1>information about what was going to happen at those companies

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<v Speaker 1>and perhaps others if they rummaged around through the system.

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<v Speaker 1>You just don't know what you're going to find. Bob,

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<v Speaker 1>the attack occurred last year. The SEC just disclosed it

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<v Speaker 1>on Wednesday. Is that against its own advice to companies

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<v Speaker 1>to announce cyber attacks promptly. Well, it's it's it's hard

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<v Speaker 1>to tell the type attrition. I mean, the problem is, um,

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<v Speaker 1>you know that the SEC is sort of forced start

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<v Speaker 1>faced with a dilemma. On the one hand, if it

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<v Speaker 1>reveals information that turns out not to be really that

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<v Speaker 1>important in the long gre term but sort of stokes

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<v Speaker 1>a panic or stokes sort of excess concern in the

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<v Speaker 1>short term, Uh, than it might well, you know, sort

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<v Speaker 1>of think better about having disclosed something too quickly. So

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<v Speaker 1>it's not sure whether to tell anybody right away because

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<v Speaker 1>it doesn't want to cause more panic than might be warranted.

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<v Speaker 1>On the other hand, that being said, if it does

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<v Speaker 1>indeed turn out to be a significant problem, but then

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<v Speaker 1>of course the SEC looks to have egg on its

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<v Speaker 1>face when it turns out that it knew the information

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<v Speaker 1>even sooner. In this particular case, I think what's particularly

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<v Speaker 1>important or maybe worth noting, is that it didn't reveal

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<v Speaker 1>the information until it determines that somebody might actually have

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<v Speaker 1>used some still gotten information in order to engage in

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<v Speaker 1>some form of insider trading. And that's something the SEC

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<v Speaker 1>apparently only just learned. And as Robert Hockett, a professor

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<v Speaker 1>at Cornell University Law School, and Peter Henning, a professor

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<v Speaker 1>at Wayne State University Law School, speaking with Bloomberg Law

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<v Speaker 1>host June Grasso and Michael Best, you can listen to

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<v Speaker 1>Bloomberg Law weekdays at one pm Wall Street Time here

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<v Speaker 1>on Bloomberg Radio and now among the top legals to

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