SEC hack threatens a bedrock of U.S. capitalism: transparency

WASHINGTON—The U.S. Securities and Exchange Commission says its database of company filings has significantly increased corporate transparency. But a hack that led to the theft of market-moving secrets is the latest sign that technology also brings dangers the SEC is struggling against.

The breach adds to a growing list of SEC embarrassments over Edgar, an online system in which companies are required to disclose such things as stock sales by top executives and regulatory investigations. Past setbacks include fraudsters posting fake takeover announcements and allegations that some traders were getting access to company news before others.

The cyberattack that occurred last year but not disclosed until Wednesday could be the most problematic incident, because it casts doubt on the SEC’s ability to safeguard data that fuels billions of dollars in daily financial transactions. The regulator was already grappling with hackers infiltrating companies to profit from insider trading, and now it turns out that its own systems are a target.

If such breaches continue, or if the SEC is too underfunded or outgunned to fix them, it could undermine company and investor confidence in the agency. That might threaten the regulator’s ability to provide a bedrock principle of the U.S. financial system: market transparency.

SEC Chairman Jay Clayton, who took over in May, is scheduled to testify before the Senate Banking Committee Tuesday. He’s expected to be questioned about the hack and why the agency waited so long to reveal it. The SEC said it doesn’t believe the breach led to the exposure of personally identifiable information, such as Social Security numbers.

The SEC has cautioned companies about what they put in test announcements. In a 2015 news release, the agency advised businesses seeking to raise money through crowdfunding not to include “confidential or personally identifiable information” in practice filings. Companies often don’t follow that advice, according to securities lawyers and corporate executives.