SEC Seeks Court Order in Investigation of Chinese Cyberattack
WASHINGTON — A Securities and Exchange Commission investigation of a Chinese cyberattack is being opposed by some of Washington, D.C.’s biggest law firms.
The SEC says it is trying to investigate the extent of 2020 cyberattacks in the United States, such as the one that penetrated computer servers of Covington & Burling and 298 of the law firm’s corporate clients.
The law firm says it seeks to protect the confidentiality of its clients by refusing to turn over the information.
The dispute in federal court coincides with an SEC proposal on Wednesday of more stringent cybersecurity rules for corporations, particularly in the financial industry.
In one set of 2020 attacks, the Chinese government is accused of compromising data of pharmaceutical companies doing COVID-19 research to steal their data on vaccines, treatments and other intellectual property.
In addition to monitoring financial transactions of the largest U.S. corporations, the SEC is appointed by Congress to ensure their cybersecurity. They can face fines for lax cybersecurity.
The SEC issued a subpoena to Covington & Burling last year asking the firm to turn over the names of clients that might have been affected by a Chinese military cyber intrusion.
When Covington & Burling refused, the SEC filed a lawsuit in January asking the U.S. District Court for the District of Columbia for an order to enforce the subpoena.
Covington & Burling, along with 83 law firms that joined in an amicus brief, argue the information sought by the SEC is confidential information protected under the Sixth Amendment as attorney-client privilege.
Covington & Burling also said in a Feb. 14 opposition brief filed in the case that the SEC hid its true motives.
The SEC is conducting a “fishing expedition” to target the firm’s clients, “despite the absence of any evidence to suggest that those clients or anyone else violated the securities laws,” Covington & Burling said in its brief.
In addition, “The SEC has not pointed to any suspected violation; instead, it is using the threat actor’s wrongful access to Covington’s network as an excuse to rummage through protected information to which the SEC would never otherwise have access,” the firm said.
The SEC responded by calling Covington & Burling’s accusations “hyperbolic and exaggerated.”
Instead, the agency said, “The commission needs this list to fulfill its congressionally mandated mission of protecting investors and regulating the public securities markets. And the commission has subpoenaed Covington because Covington alone possesses this information.”
Joining the amicus brief for Covington & Burling were Big Law firms Morrison & Foerster LLP, Kirkland & Ellis LLP and Latham & Watkins LLP as well as the U.S. Chamber of Commerce.
In a related move, the SEC is considering proposals it calls resilience projects to protect financial industry customers, such as the ones hit by the collapse last week in California of Silicon Valley Bank and by the financial crisis of 2008.
The commission’s leading proposal would require financial brokers, dealers, investment companies and investment advisors to adopt written policies on responding to unauthorized access to customer information. It would include procedures for notifying anyone affected by the security breaches.
SEC Chair Gary Gensler explained the need for the new cybersecurity procedures by saying his agency “has a responsibility to help protect for financial stability.”
The lawsuit in federal court is Securities and Exchange Commission v. Covington & Burling LLP, case number 1:23-mc-00002, in the U.S. District Court for the District of Columbia.