Cambridge Analytica Bankruptcy Shows the Perils of Data Security Breaches

After nearly two months of non-stop controversy and scandal over its improper use of Facebook data, Cambridge Analytica finally announced that it was ceasing operations, effective immediately. As part of winding down its operations in both the UK and the U.S., the company will file for bankruptcy. In doing so, Cambridge Analytica has become the new poster child to highlight the perils of data security breaches.

While still clinging to the notion that it had done nothing fundamentally different from what other companies have done, Cambridge Analytica conceded that its role in the Facebook scandal had made it a pariah in the business world. As the company announced in a statement, “The siege of media coverage has driven away virtually all of the company’s customers and suppliers.” On top of that, Facebook had already cut off Cambridge Analytica from its platform, meaning that the core ingredient of the disgraced company’s business model – Facebook user data – was no longer available for analysis and data mining.

Is there life after a data privacy scandal?

The big question, of course, is what happens next for the people involved with Cambridge Analytica. The company might be shutting down operations, but that doesn’t necessarily mean that the people behind the company – both the executives and investors – are walking away from similar types of business endeavors. There have been some published reports, in fact, that executives of Cambridge Analytica are forming a similar type of company, also to be based in Britain.

In one scenario that has been floated, a wealthy Hong Kong financier and Erik Prince (the controversial founder of Blackwater) are combining forces with members of the wealthy Mercer family to re-launch and re-brand the company as Emerdata. Other scenarios have suggested that Cambridge Analytica might be looking for ways to sell its most valuable assets – data and intellectual property – to the highest bidder before it closes its doors for good.

There are obviously going to be a number of legal, not just business, implications if Cambridge Analytica attempts to rise, Phoenix-like, from the ashes. One of those involves a pending case from the UK’s Information Commissioner’s Office related to Cambridge Analytica’s role in the 2016 Brexit referendum. Just as U.S. legislators allege that Cambridge Analytica helped to tip the scale in favor of U.S. President Donald Trump during the 2016 presidential election, UK legislators allege that Cambridge Analytica helped to tip the scale in favor of Brexit in 2016. Efforts to resolve this case might make it harder for Cambridge Analytica to close up shop and quietly walk away.

The financial cost of a data security breach

While Cambridge Analytica stands alone as an example of a company that has been toppled as the result of a Facebook-related data privacy breach, there are many examples of companies that have paid the price – literally – for a data security breach. In the latest 2017 “Cost of Data Breach Study” conducted by IBM and the Ponemon Institute, the average cost of a data breach involving sensitive data is now $3.62 million. If you break that down, it comes out to an average cost of $141 for every lost, stolen or breached record. While the cost of a data breach has decreased by nearly 10 percent on a year-over-basis, the size of the average data breach has increased by almost two percent.


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