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Securities and Exchange Commission Settles Charges Against Flagstar for Misleading Investors About Citrix Data Breach

Posted on December 17, 2024 by Dissent

ADMINISTRATIVE PROCEEDING
File No. 3-22360

December 16, 2024 – The Securities and Exchange Commission today filed settled charges against Flagstar Bancorp, Inc. (now known as “Flagstar Financial, Inc.”), for making materially misleading statements regarding a cybersecurity attack on Flagstar’s network in late 2021 (the “Citrix Breach”).

The SEC’s order finds that Flagstar negligently made materially misleading statements regarding the Citrix Breach, which resulted in, among other things, the encryption of data, network disruptions, and the exfiltration of the personally identifiable information (“PII”) of approximately 1.5 million individuals, including customers. According to the order, the risk factors in Flagstar’s 2021 Form 10-K, which it filed on March 1, 2022, stated that cybersecurity attacks “may interrupt our business or compromise the sensitive data of our customers,” but Flagstar did not disclose that Flagstar had already experienced cybersecurity attacks that resulted in the exfiltration of sensitive customer data and that the Citrix Breach interrupted its business. The SEC’s order also finds that in a June 17, 2022 notice to customers posted on its website and a Form 10-Q filed on August 9, 2022, Flagstar made additional materially misleading statements concerning the scope of the Citrix Breach and represented that there was unauthorized “access” to its network and customer data, when Flagstar was aware that the breach disrupted several of its network systems and that customer PII was exfiltrated from its network. The SEC’s order also finds that Flagstar failed to maintain disclosure controls and procedures regarding cybersecurity incidents designed to ensure that relevant information to assess materiality was considered by disclosure decision makers to allow timely decisions regarding potentially required disclosure.

The SEC’s order found that Flagstar violated Section 17(a)(2) of the Securities Act of 1933 and Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-13, and 13a-15 thereunder. Without admitting or denying the findings in the SEC’s order, Flagstar agreed to cease and desist from committing or causing any violations of these provisions and to pay a $3.55 million civil money penalty.

The SEC’s investigation was conducted by Christine Bautista, Peter Senechalle, and Kathleen Sweeney of the Chicago Regional Office and Christopher Carpenter in Washington, D.C.

Trial attorneys Robert M. Moye and Ashley Dalmau-Holmes assisted with this matter. This matter was supervised by Amy Flaherty Hartman and Jorge G. Tenreiro of the Crypto Assets and Cyber Unit.

Source: SEC


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