Settlement Component


Judge Walker repeatedly asked the former class counsel to place a value on the benefits the rejected settlement offered to the class. I think it’s doable, and no one has truly done so, so I’m going to give it a shot.

  • The audit component does not require TD Ameritrade to fix the problems found, and mainly benefits the firm, not its clients, so I give it a value of $50.  Weekly penetration testing can be ordered for about $100/per YEAR, so this is generous. I discussed this in more detail in my CMC statement (see page 10 of that document) and in a forthcoming (currently private) blog post dedicated to this component.
  • Regarding the software offered in the rejected settlement: TD Ameritrade defied the judge’s order; they never plainly stated how much they had or would pay for the software.  Though I was given an approximation, I can’t disclose it, and have little faith in the source or the number (and no, it’s not from a whistleblower).  I feel the software component should be valued based upon actual redemption rates, as tracked by proof of payments received for the software by the software firms from TD Ameritrade after the final settlement date. For each class member who downloads (and if activation is required, activates) the software, the value should be $5 (This is five times the amount the firm has implicitly represented as the cost.) If the Trend Micro or other software comes with the standard 3-year, 3-computer license, then its valuation should be trebled.  Postscript: it seems I was right to not trust the source for the approximation; I was told TD Ameritrade had already paid or committed to pay a certain amount the software.  If that was true, they wouldn’t have removed it from the settlement agreement, as it was a sunk cost, even if its value was being discounted by the court, it certainly still had some value. 

KamberEdelson/KamberLaw/Edelson McGuire law firm/attorney compensation, if any should be based not upon the rates they proffered the court, but rather upon the hourly rates at which the firm agreed to represent the class, as recorded in the contract signed May 14, 2007, of $500 (Scott Kamber and Alan Himmelfarb), and $335 (Ethan Preston and Dana Rubin), and an appropriate multiplier, and on the value of the settlement, and factoring the quality of the representation – which led to another firm, Kreindler and Kreindler stepping in as lead plaintiff’s counsel.

The SEC has a pathetic new regulation, its first on cybersecurity.  It’s another cog in a system designed to provide the appearance of Justice without actually meting it out to the very powerful or wealthy.  The SEC refused to act on warnings about the TD Ameritrade breach, the Madoff scam, and is poised to … continue to do more of the same…

How do I feel?

I feel like the justice system has let me down, like the Wall Street protesters who, e.g. want to see the executives of my former employer who lied to congress at least get arrested.

TD Ameritrade (TDA) has refused to pass a security audit, and the attorneys supposedly representing the class are OK with that. If TDA had secured their customer data properly, they would, most certainly, be eager to show their customers and target market.

My friends and I are angry that TDA’s security is still Swiss cheese. Earlier this year, they accidentally admitted that they didn’t even have an IDS or IPS system in place! I hear they still don’t encrypt customer data and still grant staff far more customer data access than is needed to do their jobs. They’re in violation of Massachusetts law. They’re literally making millions serving customers over the Internet that they wouldn’t make without the Internet, but not taking the small steps necessary to protect those customers. They spent millions on attorneys (at one judge-managed mediation session, there were ~30 attorneys present.) Instead of covering up their mistakes, they should be doing the right thing.

They profit off the Internet, but won’t invest in it! Their databases are an open book to gangs and even determined high-school students. They should be hiring and training their staff and deploying resources so that they can pass a security audit. They’ll get hacked again. And when they do, they’ll be back in court. And this warning, which I delivered in court, will haunt them.

The Armstrong court cherry picked which objections in my final filing to address and which to ignore.  The court demonstrated that it doesn’t even understand the 9th District’s own General Order (regarding PDFs) because it’s too technical!  (Even though it’s quite simple.)  There’s no way it understood all the key technical security issues in this case.

There’s been a news blackout with respect to the fact that TD Ameritrade actively covered up the security breach, as the whistleblower-sourced information I’ve published here details.

I’m glad that TD Ameritrade has at least received some bad press for its disgraceful behavior, and that those who filed claims are expected to receive significant compensation.  I’m glad that the bulk of the class is at least somewhat aware of the breach.  Unfortunately, the insignificant cost of this settlement sends the message that executives who underfund the Information Security department and direct the cover-up of a security breach breach are making the right choices, as far as the financial interests of shareholders go.  TDA would need to spend more than it spent settling this case to shore up its security enough to pass a proper audit.

I’m sick and tired of having essentially no choice but to intentionally expose my computer to attack and root compromise by any resourceful and motivated adversary.  It’s time to do more about it.  COMING SOON:  elvey.com/insecure

Should I sue the makers of this film for copyright infringement?

I’m joking, of course, in case that wasn’t obvious.  However, this film does a damn good job portraying what the InfoSec department at TD Ameritrade was (and, unfortunately, still is) like.  Counsel recently informed me, probably not realizing the foolishness it exposed, that TD Ameritrade DID NOT HAVE AN INTRUSION DETECTION SYSTEM(IDS) (or an Intrusion Protection System (IPS)) in place!

Watch it. (just Episode 1! It’s just 4 minutes.  Definitely skip Episode 2. Episode 3 is weak too.)

And no, I’m not endorsing AppSec or DBPROTECT.

Note the underlined bits.  Note the choice of words used.  Spam, instead of Security Breach.  “Other personal information”, instead of “including Social Security Numbers, Account Balances, Home Addresses and Phone Numbers” or better yet, the – still undisclosed – complete actual list of the data fields in the compromised database.
I’ve been following TD Ameritrads’s SEC Filings – 10-Q’s, etc.
In one 10-Q, I find this note about the case; similar notes are in other 10-Q’s:
Spam Litigation – A purported class action, captioned Elvey v. TD Ameritrade, Inc., was filed on May 31, 2007 in the United States District Court for the Northern District of California. The complaint alleges that there was a breach in TDA Inc.’s systems, which allowed access to e-mail addresses and other personal information of account holders, and that as a result account holders received unsolicited e-mail from spammers promoting certain stocks and have been subjected to an increased risk of identity theft. The complaint requests unspecified damages and injunctive and other equitable relief. A second lawsuit, captioned Zigler v. TD Ameritrade, Inc., was filed on September 26, 2007, in the same jurisdiction on behalf of a purported nationwide class of account holders. The factual allegations of the complaint and the relief sought are substantially the same as those in the first lawsuit. The cases were consolidated under the caption In re TD Ameritrade Accountholders Litigation. The Company hired an independent consultant to investigate whether identity theft occurred as a result of the breach. The consultant has conducted four investigations since August 2007 and reported that it found no evidence of identity theft. The parties entered into an agreement to settle the lawsuits on a class basis subject to court approval. On May 1, 2009, the Court granted preliminary approval of the proposed settlement, which had been revised, and set a hearing on final approval for September 10, 2009. Some class members have filed objections and opt-outs. The settlement is not expected to have a material effect on the Company’s financial condition, results of operations or cash flows.

I will make them talk. A, B, C, and D (not their real names) are all current or former members of TD Ameritrade’s InfoSec group.

Over a month ago, I filed and served a legal subpoena for their emails about the breach.  I also subpoenaed all the reports by internal staff and involved outside firms, which include ID Analytics, Mandiant and Protiviti, regarding the breach, which I understand will cover at least five security audits related to investigating the breach.

But TD Ameritrade has refused to honor the subpoena – AT ALL.

The other things I subpoenaed were:

C) A copy of the circa September 18, 2007 deposition of the former TD Ameritrade CSO (Chief Security Officer) regarding this breach.

D) TD Ameritrade stated on September 15, 2008, “We know specifically when the breaches began.” We request a copy of a document disclosing that date.

E) A copy of each Letter to the Audit Committee and Letter to the Audit Committee Chairman from the company’s auditors from 2005 to 2010, inclusive. Discusson of deficiencies that could have no impact on customers could be redacted.

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