Bloomberg News

EMC’s RSA Security Breach May Cost Bank Customers $100 Million

June 08, 2011

June 8 (Bloomberg) -- The security breach at EMC Corp.’s RSA unit may cost the banking industry as much as $100 million to replace identification tokens that left their computers vulnerable to spying.

Banks may be forced to pay $50 million to $100 million to distribute new RSA SecurID devices that employees use to securely log onto corporate networks, according to a Gartner Inc. research analyst. RSA clients include Wells Fargo & Co. and Northwest Bancshares Inc. as well as defense contractor Lockheed Martin Corp., which said a May 21 cyberattack on its computers is linked to the March breach of RSA’s SecurID database.

Gartner estimates that about 80 percent of banks in the U.S. use that type of security token and Bedford, Massachusetts- based RSA has about 50 percent of the market. The breach is larger in scope than recent attacks, including the March 30 infiltration of Alliance Data System Corp.’s Epsilon e-mail marketing unit, which resulted in the theft of customer data from banks including Citigroup Inc. and JPMorgan Chase & Co.

“Compared to Epsilon this is more serious because it was an attack against an authentication system used by defense agencies and banks,” Avivah Litan, a security analyst at Stamford, Connecticut-based Gartner, said in an interview.

RSA said June 7 it would replace customers’ SecurIDs. There are about 40 million tokens in use, Litan said. Bethesda, Maryland-based Lockheed, the world’s largest military contractor, said June 4 it had already mailed new tokens to 45,000 employees. Raytheon Co., the biggest maker of missiles, and Northrop Grumman Corp., maker of B-2 stealth bombers and Global Hawk drones, are also SecurID users, according to RSA.

Customer Response

“Many customers, as they reflect on the fact that there is no new risk, will remain comfortable using the remediation we have recommended since March,” said Helen Stefan, a spokeswoman for RSA. “The potential does exist to replace hardware tokens in the millions, but we do not foresee replacing anywhere near the range of 30-40 million.”

Gartner estimates that banks pay $27 to $58 a year per user for the tokens, including the server software needed on the back end. Even if RSA does replace the tokens, customers will incur costs for final distribution to employees.

Right now banks are “deliberating, because it is costly, but I would say that most of them will take RSA up on the offer,” Litan said.

Litan estimates that there are 3,500 FDIC-insured institutions, with about 500 to 1,000 people each using security tokens. If all the banks agree to RSA’s offer, the cost of distribution would be $50 million to $100 million, she said.

RSA Competitor

Most companies contacted for this story including General Electric Co., United Continental Holdings Inc. and Citigroup wouldn’t discuss their computer-security measures. Laura Hunter, a spokeswoman for Bank of America Corp., and Gabriel Boehmer, a spokesman for Wells Fargo, said each company is replacing some tokens, without elaborating on security plans.

“Security is core to our mission and safeguarding our customers’ information is at the foundation of all we do,” said Bridget Braxton, a spokesman for San Francisco-based Wells Fargo. “We constantly monitor the environment, assess potential threats, and take action as warranted.”

RSA’s biggest competitor with this type of token is Oakbrook Terrace, Illinois-based Vasco Data Security International Inc. Vasco rallied 36 percent on the Nasdaq Stock Market in the 12 trading days following EMC’s March 17 disclosure of the RSA data breach. EMC rose 1.8 percent in New York Stock Exchange composite trading in that time.

Representatives of Vasco weren’t available to comment.

EMC Margins

EMC, the world’s biggest maker of storage computers, bought RSA in 2006 for about $2 billion to expand into security software. The unit made up about 4 percent of Hopkinton, Massachusetts-based EMC’s $17 billion in revenue last year.

Gross margins for RSA narrowed to 54.1 percent in the quarter ending March 31, from 67.6 percent a year earlier, EMC said in a May regulatory filing. EMC attributed the decrease to costs associated with investigating the cyber attack, work done on its systems and remediation actions conducted with customers.

The attack began with e-mails sent to small groups of RSA users, presumably employees, that were titled “2011 Recruitment Plan” and wound up in their junk files, RSA told analysts including Litan in an April 1 conference call. Attached to those e-mails was a spreadsheet that contained malicious software that gathered security credentials until it found the targeted system. Secret data was stolen and sent to an outside hosting provider, according to an April 1 blog post by Litan.

Serial Numbers

The stolen information was two secret pieces of data, including seed and serial numbers, said Johannes B. Ullrich, chief research officer at SANS Technology Institute in Bethesda, Maryland. With the tokens, every 30 seconds new numbers show up and they are used as a password. The computer server has to know which number to expect from you and the serial number, he said.

Through the stolen RSA information, Ullrich said, hackers knew which serial numbers had been sent to Lockheed. They didn’t know which employee had which token, and it’s unclear how hackers had gathered that information, Ullrich said.

Ullrich said the attack “was definitely state-sponsored” espionage because the scheme was so sophisticated.

--With assistance from Rachel Layne in Boston, Mary Jane Credeur in Atlanta and Dakin Campbell in San Francisco. Editors: Romaine Bostick, Robin D. Schatz

To contact the reporter on this story: Rachael King in San Francisco at rking25@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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