On Thursday the 22nd of September, Yahoo confirmed a data breach compromising the user accounts of over 500 million users. The internet company is accusing a ‘state-sponsored actor’ for the attack, which estimates indicate could be the largest breach encountered thus far. News of the breach first made headlines in August when a known cybercriminal known as ‘Peace’ claimed to be in possession of 200 million credentials of Yahoo users dated from 2012, but remained unconfirmed until last week.
A day after Yahoo’s confirmation, New York resident Ronald Schwartz filed a lawsuit in the federal court of San Jose, California, alleging that Yahoo’s ‘failure to establish and implement basic data security protocols, contrary to Yahoo’s guarantees’ has led to the personal information of its users falling into the hands of criminals and U.S. rivals. Schwartz has reportedly sought a class-action status against Yahoo Inc., with similar cases being instituted in Illinois and San Diego seeking compensation for damages resulting from fraud. The lawsuit further alleges that the defendant allowed unauthorised and malicious access to the class’s personal information on the defendant’s computer systems to continue unimpeded for close to two years.
The case, Schwartz v. Yahoo Inc., could have seriously detrimental effects on the company, coming at a particularly crucial period with Yahoo’s 4.8 billion dollar acquisition by Verizon planned for early next year. It is at this point unclear whether the disclosure of the data breach affects these plans, with Verizon stating that the situation will be evaluated as the investigation continues ‘through the lens of overall Verizon interests, including consumers, customers, shareholders and related communities’.
The data breach could also give Verizon the desired leverage to renegotiate the terms of the merger agreement by invoking clauses such as ‘material adviser effect’ clause, defined in the agreement as developments which can have a detrimental impact on ‘the business, assets, properties, result of operation or financial condition of the business, taken as a whole’.
If the deal falls through, Yahoo would have to pay around 145 million dollars as termination fees to Verizon, and with the company already struggling to remain profitable, the fate of Yahoo depends on the result of the investigation and Verizon’s interpretation of the situation.