FTC Settles with Ceridian, Lookout over Data Breach, Weak Web Security

Ceridian and Lookout Services settled the lawsuits from the Federal Trade Commission over their poor Web security practices that compromised customer data.

The Federal Trade Commission settled with Ceridian and Lookout Services over charges that the companies failed to put sufficient security measures in place to protect sensitive information for 65,000 people.

Under the terms of the settlement, both companies will have to implement a "comprehensive information security program" and to undergo independent third-party security audits every other year for 20 years, the FTC announced on May 3.

"Both Ceridian and Lookout claimed they would take reasonable measures to secure the consumer data they maintained, including social security numbers, but failed to do so," according to the FTC statement.

Payroll provider Ceridian failed to encrypt personal information and stored it in clear text for an unspecified period of time. The company's Web-based payroll processing application was breached by a third-party intruder in December 2009 and personal information belonging to 28,000 people was compromised. Social Security numbers and direct deposit information belonging to "employees of Ceridian's small business customers" were stolen.

Ceridian failed to take "readily available, free or low-cost defenses" against SQL injection attacks, the FTC said in its complaint.

Lookout Services, an immigration services software provider, did not securely store private information from unauthorized access. Anyone could access the data via its Web-based software, the FTC charged. The data included names, addresses, dates of birth and Social Security numbers. The problem was discovered when a Lookout customer accidentally accessed the Social Security numbers of 37,000 Lookout users in other organizations in October 2010, according to the FTC.

"Neither of these cases represents a sophisticated attack that undermined strong security measures," Jackie Gilbert, vice president of product and marketing at SailPoint, told eWEEK. Since "basic" security controls were not in place, it was "child's play" for external intruders to gain access to sensitive customer data, according to Gilbert.

Lookout didn't even require a username or password to access the information, as it was accessible by typing a URL into the Web browser. Not only did the company not require strong passwords, employees were not required to periodically change passwords and did not receive "adequate" training, the FTC charged.

"Our servers are continuously monitoring attempted network attacks on a 24/7 basis, using sophisticated software tools," Lookout claimed in its promotional materials dating as far back as 2006, even though it did not have an intrusion detection system until October 2009 and did not adequately monitor logs until December 2009, the FTC said in its complaint.

"These stories are classic examples of why companies need strong controls over access to sensitive data, with governance and oversight to ensure the effectiveness of those controls," Gilbert said.

Ceridian and Lookout Services both claimed they took reasonable measures to secure sensitive data, but FTC accused them of negligence whose "unfair and deceptive" security practices put consumers at risk. Ceridian claimed its security program was "designed in accordance with ISO 27000 series standards, industry best practices and federal, state and local regulatory requirements."

Mandating comprehensive data security plans and independent security audits as part of the settlements sent a "clear signal" to companies that they will be held accountable, according to Gilbert.

The FTC settlements bar the companies from making misrepresentations, including misleading claims about the privacy, confidentiality, or integrity of any personal information collected about consumers.

If companies do not protect the personal information they collect and store, that information could be compromised and result in fraud, causing consumers to lose confidence in the marketplace, David Vladeck, director of the FTC's Bureau of Consumer Protection, said at the House Subcommittee on Commerce, Manufacturing, and Trade hearing on data breaches on May 4.

"Data security is of critical importance," Vladeck said.

The FTC has sued 34 businesses since 2001 for failing to protect consumers' personal information. Twitter finalized its settlement in March over charges that the micro-blogging site did not safeguard user privacy and misled users about its security practices.