This document discusses how data breaches and cyber attacks typically do not significantly harm companies' stock prices. Through analysis of past breaches, the document shows companies usually experience only minor stock dips and recover quickly. However, serious operational issues like safety problems can severely damage stock. The document advocates activist investing approaches to challenge cybersecurity spending and push companies to prioritize returns. It also provides advice on structuring companies through subsidiaries to better protect assets from litigation following a breach.

1. Buy The
Dip
John Foster, CTP, ISO 9001,
14001, 20000, 22301,
27001, 28000
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Flickr:revstan

2. Topics
 Stock Market
Analysis of Hacked
Companies
 Financial Impact
Analysis
 Spend Analysis
 Dealing with Equity
and Debt Investors
 Treasury & Cyber
Insurance
 Exercise: Non-
Technical Defense
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3. Disclaimer
 All opinions no facts
• No slander or libel lawsuits
 All opinions are mine
• Unless you want to sponsor
 No offer to buy or sell securities
 Nothing here constitutes personalized advice
 Always seek sane and qualified advice
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4. Bio
 Compliance &
Sustainability
 Financial Researcher
 Certified Treasury
Professional
 Active Trader
 Cost Cutter
 Activist Henchman
 John.Foster@bfgllc
.net
 @dearestleader
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5. That’s How I Troll, Bro!
 Kim! I’m laughing
at the ridiculous
haircut!
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6. Fun Stuff
 Volunteer animal
rights /
environmental
nonprofits
 Nightclub &
concert promoter
 Appeared in
several d20
supplements
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7. Stock Photography
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8. What We Have Been Told Is Wrong
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9. There Is A Cover Up
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10. What Do We Hear?
 Reputation
damage
 Customers leave
 Board & Executives
fired
 You will be hacked
out of business
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11. Turn Your World Upside Down
 Companies do not
get hurt
 Consumers do not
care
 Numbers support
this
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12. Class Is In Session
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Flickr: benrussell

13. Backtesting Experiment
 Hypothesis:
Hacked companies
go out of business
 Test: Short sell 100
shares at market
close on day of
breach
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Date
Opened Symbol Qty
Current
Price
Opening
Price Net
3/18/2011 EMC 100 27.65 25.63 -202.00
4/26/2011 SNE 100 27.51 29.79 228.00
5/28/2011 LMT 100 197.66 72.69 -12,497.00
5/31/2011 LLL 100 125.3 74.1 -5,120.00
6/2/2011 NOC 100 160.41 59.5 -10,091.00
8/7/2012 LNKD 100 264.63 106.7 -15,793.00
8/15/2013 NOC 100 160.41 93.79 -6,662.00
9/13/2013 TGT 100 77.21 62.36 -1,485.00
2/11/2014 LVS 100 55.09 78.32 2,323.00
5/21/2014 EBAY 100 59.87 51.81 -806.00
5/30/2014 MON 100 118.17 121.85 368.00
6/12/2014 T 100 33.48 34.83 135.00
8/15/2014 SVU 100 10.24 9.31 -93.00
8/18/2014 CYH 100 50.78 51.65 87.00
8/20/2014 UPS 100 100.62 98.8 -182.00
8/26/2014 SNE 100 27.51 18.87 -864.00
8/29/2014 JPM 100 60.89 59.45 -144.00
9/2/2014 HD 100 114.45 91.15 -2,330.00
9/2/2014 AAPL 100 126.6 103.74 -2,286.00
10/1/2014 SVU 100 10.24 8.64 -160.00
10/3/2014 T 100 33.48 35.36 188.00
10/10/201
4 SHLD 100 39.01 24.78 -1,423.00
11/24/201
4 SNE 100 27.51 21.63 -588.00
12/19/201
4 SPLS 100 16.05 17.55 150.00
2/4/2015 ANTM 100 145.16 137.65 -751.00
3/2/2015 NGVC 100 29.64 29.53 -11.00
TOTAL -55,574.00

14. I Lost How Much???
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8tracks.com

15. Case Study TGT vs XRT
 TGT has lower
performance
 Relative to XRT
both flat
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16. TGT After The Breach
 IV 25%
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17. Did Wal-Mart Get Hacked Too?
 IV 23%
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18. The Whole Retail Sector Got Hacked!
 IV 52%
 Entire retail sector
has 2x more risk
than TGT
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19. Target Is Up Big
 Marketwatch: TGT
sales up 40%
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20. HD
 Marketwatch:
Yawn Who cares
about HD’s Data
Breach?
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21. HD
 Bullish Channel
 Bounce off 50SMA
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22. ANTM Day Of Breach
 Trendline bounce:
Bullish
 Single purchase of
59,894 shares @
137.23
 $8,219,253.62
single order
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23. ANTM
 ANTM is highly
correlated to SPX
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24. ANTM
 Bullish Channel
 50 SMA Up Trend
 MACD crossover
 RSI Trend up
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25. S&P Says It Like It Is
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26. I Feel Robbed!
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27. Data Breaches Don’t Hurt Stock Price
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28. Nobody Cares!
 2014 Experian
Survey: 1/3+
consumers did
nothing after
breach
notification.
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29. Fair Credit Billing Act
 Limits
unauthorized
charges to $50
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30. If Data Breaches Don’t Hurt, What Does?
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31. Blowing Up An Oil Rig
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32. Selling Dangerous Consumer Goods
 “60 Minutes”
flooring with toxic
levels of
formaldehyde.
 Stock drops by
more than 50%
 Tilson Funds holds
major short
position.
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33. What about Target’s CEO?
 He was fired
because of the
data breach!
 The Infosec press
says so!
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34. The Financial Reality
 Pretax loss $5.4
Billion on Canada
 Breach Cost: 0.191
Billion - .046 Billion
in Insurance
Pretax loss 0.145
billion
 Top Line Revenue
1/31/2015: 72.618
Billion
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35. Home Depot
 According to earnings
call: Carries $100
Million in
cyberinsurance
 Gross breach
expenses $63 Million
 After insurance
expenses: $33 Million
 2014 Revenue
$83,176 Million
 Q4 EPS +43.8%, FY14
+25.3% EPS
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36. Anthem
 Business
Insurance: Anthem
has $200 Million in
cyberinsurance
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37. Are We Spending Too Much On Security?
 CEO Jamie Dimon
letter to
shareholders:
 Security budget
$250 Million
 1000 Employees
 Computer Weekly:
JPM to double
security budget
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38. Activist Investors
 Buy shares to
control company
 Threaten to oust
board and CEO if
costs are not cut
and profits
returned to
shareholders
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39. Starboard Value vs Darden Restaurants
 Fund owns 8.8% of
Darden
 Published 294 slide
presentation on why
the company could
make more money
 Called for
replacement of all
12 board members
 Shareholders
approved
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40. Relational Investors LLC vs. Timken
 Investor Highlights:
 Pension
contributions drop
from 33% of CF to
near zero
 CapEx cut 50%
 12% of CF for stock
buybacks
increased to 50%.
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41. Who is Third Point LLC?
 The Activist Insight
Activist Investing
Review 2014
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42. Third Point LLC vs Sony
 Investor Letter 3Q14
 Took significant stake in
Sony May 2013
 Suggested Spinoff of
Entertainment
 Payoff: incentivizing
Entertainment’s
management to run the
company more
efficiently by engaging
in cost cutting and
laying out clear earnings
targets.
 Third Point sold for 20%
return
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43. Debt Covenants
 Financial
 Operating Activity
 Reporting &
Disclosure
 Preservation of
collateral
 Investment
Expenditure
 Asset Sale
 Cash Payout
 Management
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44. Leucadia loan to FXCM
Aggregate amount of sale
proceeds or
dividend/distributions
Leucadia
FXCM Holdings
Amounts due under Leucadia
term loan, including fees
100% 0%
Next $350 million 50% 50%
Next amount equal to 2 times the
balance outstanding on the term
loan and fees as of April 16,
2015, such amount not to be less
than $500 million or more
than $680 million
90% 10%
All aggregate amounts thereafter 60% 40%
 2 year loan of
$300M
 10%, +1.5% per
quarter up to 17%
 Limits ability to
merge, sell, lease,
any assets
 If not paid off in
3yrs Leucadia can
force a sale
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45. Well, You Did Agree
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46. Get To Know Your Treasurer
 Treasury normally
handles insurance
 Treasury protects
the company from
hackers
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47. Insurance Substitutes Certainty Qualified
Promise For Uncertainty
 Cyber falls under
Errors & Omissions
(AKA Professional
Liability)
 Subset of Property
& Casualty Ins.
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48. Common Exclusions
 Insured’s fees or
compensation
(revenue
replacement)
 Fines & Penalties
• Fines are govt
PCI is not govt
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49. Know Your Trigger
 E&O Trigger is a
wrongful act
 Sec & Privacy
Trigger is a security
failure or privacy
event
• Legislative only
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50. Add-On At Any Time
 Punitive Damages
 Voluntary
Notification
 Fines & Penalties
 Cyber Extortion
• Lockout
• Threat to Disclose
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51. Think Like An Activist
 How to run a
program with little
money.
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52. Exercise Time
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53. Scenario
 You are a compliance consultant for an activist
investment firm. A new campaign has replaced the
Board & C-Suite.
 The target company will be transformed into an
investment holding company and operations will
be spun out.
 The target company recently completed an
acquisition, but has not completed a merger.
 Your mission is to protect the IP assets of the
company while producing returns for the investors.
 The CIO, CISO, CMO were used to obtain
“synergies”.
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54. Leveraging Non-IT Resources
Compliance/Audit
FinanceLegal
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55. Audit/Compliance
 Financial and IT
 Locate Assets
 Legal &
Contractual
 Implement ISO
Standards
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56. Legal
 Patents IP
 Incorporates new
subsidiaries
 Verifies
compliance
activities
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57. Finance
 Insures assets
 Establishes tax
strategy for IP
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58. Importance of Subsidiaries
 Tiffany & Co 10K
4/1/2014
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59. New Structure
Acme Holdings, Inc
IP Company Equipment Leasing
Staffing Real Estate Operations
Data Center
Manufacturing
Logistics
 Silo business in
separate legal
entities
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60. Contagion Defense
 Each legal entity is
self-contained
 Separate bank
accounts /
accounting books
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61. Intellectual Property
 Trademark, Patent,
Copyright
 Licenses logos,
patents to other
subsidiaries and 3rd
parties
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62. Staffing Company
 Workforce shifts to
staffing company
 Resources can be
contracted out
rather than laid off
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63. Sale/Lease of Assets
 Real Estate
• Lease office space
 Source Code
• License software
 Machinery
• Lease equipment
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64. Operating Company
 Has no real assets
 Nothing to sue for
 Easily replicable
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65. Mission Accomplished
 Revenue per
employee is up
 IP protected by
attorneys
 Financial
renovations
complete
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66. Conclusion
 FUD does not sell
 People & creativity
are your greatest
asset
 Don’t be afraid to
try something
different
 Your investors may
leave you no
choice.
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