Hackers such as Baratov ply their trade without regard for the criminal objectives of the people who hire and pay them. These hackers are not minor players; they are a critical tool used by criminals to obtain and exploit personal information illegally. In sentencing Baratov to five years in prison, the Court sent a clear message to hackers that participating in cyber attacks sponsored by nation states will result in significant consequences.
While the UDB's contents did not necessarily give him everything required to access individual user accounts, it did give Belan and the two FSB agents information that could be used to locate and target specific accounts of interest. And the Account Management Tool could be used to make alterations to targeted accounts, including password changes.
A memorandum filed by U.S. law enforcement officials during the sentencing hearing in April described a "pressing need" to deter cybercriminals whose hacking can lead to other criminal activity, including foreign espionage.
Baratov was scheduled to be sentenced at that time, but Judge Chhabria questioned whether the sentence of seven years and 10 months that prosecutors were seeking was longer than what other hackers had received for similar crimes.
They argued that Baratov, who was 19 at the time the hack began, was simply a curious young man whose fascination with coding "got the best of him" and unintentionally led him to amass the wealth he eagerly displayed on social media.
"He bore no intent to cause harm. He sincerely regrets his actions," wrote Andrew Mancilla and Robert Fantone in their submission to the court. "This is a hard lesson to learn for a young man ... but it is a lesson he has learned."
"This is not a case of a teenager making an isolated mistake on the internet out of curiosity," officials wrote. "Rather, this is a case of the defendant making a profession out of breaking into the private lives of thousands of victims."
Officials, however ,described Baratov's actions as "egregious, extensive, and reprehensible" and say he hacked into the webmail accounts of 11,000 victims, broke into their digital records, and sold stolen access to their private lives between 2010 and 2017 to live "lavishly."
The Russian agents involved, Dmitry Dokuchaev and Igor Sushchin, used the information they stole from Yahoo to spy on Russian journalists, U.S. and Russian government officials and employees of financial services and other private businesses, according to prosecutors.
Dokuchaev, Sushchin and a third Russian national, Alexsey Belan, were also named in the indictment filed in February, though it's not clear whether they will ever step foot in an American courtroom since there's no extradition treaty with Russia.
Neighbours knew him for his flashy cars, which included a Lamborghini, Porsche, Aston Martin, Mercedes and BMW, according to U.S. officials. He also posted photos on social media, showing off stacks of $100 bills.
The FSB officer defendants, Dmitry Dokuchaev and Igor Sushchin, protected, directed, facilitated and paid criminal hackers to collect information through computer intrusions in the U.S. and elsewhere. In the present case, they worked with co-defendants Alexsey Belan and Karim Baratov to obtain access to the email accounts of thousands of individuals.
Gregory Edward McLean, 40, of Jacksonville, Florida, was sentenced today to 160 months for distributing child sexual abuse material and 120 months for unlawfully retaining classified national defense information. The...
On September 22, 2016, Yahoo finally disclosed the 2014 data breach to Verizon and in a press release attached to a Form 8-K. Yahoo's disclosure pegged the number of affected Yahoo users at 500 million.
The following day, Yahoo's stock price dropped by 3%, and it lost $1.3 billion in market capitalization. After Verizon declared the disclosure and data breach a "material adverse event" under the Stock Purchase Agreement, Yahoo agreed to reduce the purchase price by $350 million (a 7.25% reduction in price) and agreed to share liabilities and expenses relating to the breaches going forward.
Since September 2016, Yahoo has twice revised its data breach disclosure. In December 2016, Yahoo disclosed that hackers had stolen data from 1 billion Yahoo users in August 2013, and had also forged cookies that would allow an intruder to access user accounts without supplying a valid password in 2015 and 2016. On March 1, 2017, Yahoo filed its 2016 Form 10-K, describing the 2014 hacking incident as having been committed by a "state-sponsored actor," and the August 2013 hacking incident by an "unauthorized third party." As to the August 2013 incident, Yahoo stated that "we have not been able to identify the intrusion associated with this theft." Yahoo disclosed security incident expenses of $16 million ($5 million for forensics and $11 million for lawyers), and flatly stated: "The Company does not have cybersecurity liability insurance."
The same day, Yahoo's general counsel resigned as an independent committee of the Yahoo Board received an internal investigation report concluding that "[t]he 2014 Security Incident was not properly investigated and analyzed at the time, and the Company was not adequately advised with respect to the legal and business risks associated with the 2014 Security Incident." The internal investigation found that "senior executives and relevant legal staff were aware [in late 2014] that a state-sponsored actor had accessed certain user accounts by exploiting the Company's account management tool."
The report concluded that "failures in communication, management, inquiry and internal reporting contributed to the lack of proper comprehension and handling of the 2014 Security Incident." Yahoo's CEO, Marissa Mayer, also forfeited her annual bonus as a result of the report's findings.
Just a month after issuing new interpretive guidance about public company disclosures of cyberattacks (see our Post and Alert), the SEC has now issued its first cease-and-desist order and penalty against a public company for failing to disclose known cyber incidents in its public filings. The SEC's administrative order alleges that Yahoo violated Sections 17(a)(2) & (3) of the Securities Act of 1933 and Section 13(a) of the Securities Exchange Act of 1934 and related rules when its senior executives discovered a massive data breach in December 2014, but failed to disclose it until after its July 2016 merger announcement with Verizon.
Yahoo management's discussion and analysis of financial condition and results of operation (MD&A) was also misleading, because it "omitted known trends and uncertainties with regard to liquidity or net revenue presented by the 2014 breach." Knowing full well of the massive breach, Yahoo nonetheless filed a July 2016 proxy statement relating to its proposed sale to Verizon that falsely denied knowledge of any such massive breach. It also filed a stock purchase agreement that it knew contained a material misrepresentation as to the non-existence of the data breaches.
Despite being informed of the data breach within days of its discovery, Yahoo's legal and management team failed to properly investigate the breach and made no effort to disclose it to investors. As the SEC described the deficiency, "Yahoo senior management and relevant legal staff did not properly assess the scope, business impact, or legal implications of the breach, including how and where the breach should have been disclosed in Yahoo's public filings or whether the fact of the breach rendered, or would render, any statements made by Yahoo in its public filings to be misleading." Yahoo's in-house lawyers and management also did not share information with its auditors or outside counsel to assess disclosure obligations in public filings.
In announcing the penalty, SEC officials noted that Yahoo left "its investors totally in the dark about a massive data breach" for two years, and that "public companies should have controls and procedures in place to properly evaluate cyber incidents and disclose material information to investors." The SEC also noted that Yahoo must cooperate fully with its ongoing investigation, which may lead to penalties against individuals.
Coincidentally, on the same day that the SEC announced its administrative order and penalty against Yahoo, one of the four hackers indicted for the Yahoo cyberattacks (and the only one in U.S. custody) appeared for sentencing before a U.S. District Judge in San Francisco. Karim Baratov, a 23-year-old hacker-for-hire, had been indicted in March 2017 for various computer hacking, economic espionage, and other offenses relating to the 2014 Yahoo intrusion.
His co-defendants, who remain in Russia, are two officers of the Russian Federal Security Service (FSB) and a Russian hacker who has been on the FBI's Cyber Most Wanted list since November 2013. The indictment alleges that the Russian intelligence officers used criminal hackers to execute the hacks on Yahoo's systems, and then to exploit some of that stolen information to hack into other accounts held by targeted individuals.
Baratov is the small fish in the group. His role in the hacking conspiracy focused on gaining unauthorized access to non-Yahoo email accounts of individuals of interest identified through the Yahoo data harvest. Unbeknownst to Baratov, he was doing the bidding of Russian intelligence officers, who did not disclose their identities to the hacker-for-hire. Baratov asked no questions in return for commissions paid on each account he compromised.
In November 2017, Baratov pled guilty to conspiracy to commit computer fraud and aggravated identity theft. He admitted that, between 2010 and 2017, he hacked into the webmail accounts of more than 11,000 victims, stole and sold the information contained in their email accounts, and provided his customers with ongoing access to those accounts. Baratov was indiscriminate in his hacking for hire, even hacking for a customer who appeared to engage in violence against targeted individuals for money. Between 2014 and 2016, he was paid by one of the Russian intelligence officers to hack into at least 80 webmail accounts of individuals of interest to Russian intelligence identified through the 2014 Yahoo incident. Baratov provided his handler with the contents of each account, plus ongoing access to the account.
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