SK Communications CEO Joo Hyeong-cheol, left, pauses during a news conference last Friday after the company issued an alert on a hacking incident which compromised the data of more than 35 million of its customers. / Korea Times

Stocks tumble as corporate image suffers irrevocable damage

By Kim Yoo-chul

The situation can’t get any worse for SK Communications, the operator of Cyworld and Nate, following a hacking attack that compromised the personal information of 35 million of its customers.

Stock prices of the Internet unit of the telecommunications giant SK Telecom plummeted. Officials admitted that the recent data loss may taint the company’s image.

Efforts to calm angry customers will be challenging.

Lawyers are already circling the users of Cyworld, the country’s largest social media service, and Nate, popular for search and instant messaging services, to lure them into filing class-action lawsuits.

As the company scrambles to recover from what may be its greatest crisis to date, many wonder whether its network remains vulnerable.

The more immediate threat to Korean consumers may be from the increase in fraud. Phishing scams, which use phones, email and instant messaging services to lure users into revealing their personal information, are serious problems following the information leak.

``It was extremely frustrating to see a message pop up while chatting with my friend that read `You’ve been hacked,’’’ said Nate user Kim Jeong-eun, who plans to sign up for the class-action lawsuit.

There are already a slew of websites encouraging victims to join in the lawsuits against SK Communications. More than 1,000 customers have signed up to the online communities on Daum and Nate in the past two days, according to the portals.

``SK Communications is just parroting about how an investigation is underway, looking for the right time to make a public apology. They seem to think that this issue will go away easily if they can buy some time, and that is pretty silly,’’ said a lawyer from a major law firm in Seoul, which plans to get involved in the suit.

``I think we will be able to gather evidence about SK Communications’ mismanagement of personal information, and that would give us a better chance to win in court. Web portals have been aggressive in acquiring personal information from users to strengthen their target-marketing efforts, but were lax about protecting the data. We want to make sure that they pay for their mistake.’’

The challenge for lawyers in court is to prove that SK Communications’ customers sustained actual damage from the incident.

The data breach of SK communications’ network compromised sensitive personal information such as names, addresses, phone numbers, passwords and resident registration codes, the Korean equivalent of social security numbers.

SK Communications claims that the resident registration numbers and passwords were encrypted and aren’t likely to be abused even in the hands of hackers. Nobody is giving the company the benefit of the doubt.

SK Communications spokeswoman Choo Eun-jung claimed that fallout would be limited. Since Cyworld and Nate are both free services, the company didn’t require users to submit financial information like credit card numbers, she said.

``We can’t comment about the movement for class-action suits as we remain under investigation,’’ Choo said.

Yoo Chul-min, another Seoul-based lawyer, said that the results of any legal action against SK Communications could be influenced by court rulings for Auction, the electronic commerce giant that has been hit by class-action lawsuits following a hacking incident in 2008 that compromised the data of 18 million customers.

``If the recent data loss is found to be just another hacking incident, then the case is quite similar to that of the recent personal information leakage case by Auction. An upcoming ruling by an appeals court is important and will likely affect the SK Communications case,’’ he said.

GS Caltex, a major refiner, successfully defended itself in court against compensation suits.

Employees of GS’s subcontractors were arrested in 2009 after downloading information on millions of customers and attempting to blackmail the company.

The Seoul High Court recently ruled in favor of GS, saying there was no reason to think that the company could have prevented the criminal act.

The Korea Communications Commission (KCC) said that the recent hacking attacks at SK Communications were tracked back to an Internet protocol (IP) address in China.

The Seoul Metropolitan Policy Agency (SMPA) plans to announce its investigation results within a week.

Law enforcement authorities say they are paying particular attention to whether SK Communications had sufficiently protected customer data.

``We are looking closely at whether the company’s servers were left vulnerable. There is a possibility that the mismanagement of SK Communications’ servers and network systems could have invited the hacking attack,’’ said Jeong Seok-hwa, chief of the police’s anti-cyber terror attack bureau.

A drop in stock price is salt in the wound.

``The data leakage may trigger information-sensitive Koreans to move from SK Communications, cutting its customer numbers and lowering page views, which are the two elements that are most important to Internet companies,’’ said a fund manager in Seoul.

The manager recently lowered its portion of SK Communications shares and bought more security-related stocks because obviously even the top-level portal service is vulnerable to hackers.

Stock analysts have generally agreed that share prices will be dependent upon updates of the class action case since any compensation to the victims will directly hit SK Communication’s bottom line.

Some stock analysts believe the recent attack won’t hugely affect SK Communications stocks as institutional investors have already turned their attention to software companies as an alternative for big information technology (IT) stocks.

``When we have seen in previous similar cases as in those of NHN and NCsoft, personal information leakage won’t have a huge negative impact on SK Communications earnings,’’ said Kim Chang-kwon, an analyst from Daewoo Securities.

Kim Dong-hee, an analyst from Taurus Investment, also added the icy investor sentiment towards SK Communications will be short-lived. The local brokerage believes that the SK Communications’ chief is more than capable of settling the matter.