When a company experiences a cybersecurity incident it must make a complex materiality judgment to determine if an Item 1.05 Form 8-K is required. The Form 8-K instructions state:

Item 1.05 Material Cybersecurity Incidents.

• • • If the registrant experiences a cybersecurity incident that is determined by the registrant to be material, describe the material aspect of the nature, scope, and timing of the incident, and the material impact or reasonably likely material impact on the registrant, including its financial condition and results of operations.

In many cases companies may want to make the breach public before a materiality determination is complete. This example is from a February 21, 2024, Form 8-K filed by UnitedHealth Group:

Item 1.05.  Material Cybersecurity Incidents.

On February 21, 2024, UnitedHealth Group (the “Company”) identified a suspected nation-state associated cyber security threat actor had gained access to some of the Change Healthcare information technology systems. Immediately upon detection of this outside threat, the Company proactively isolated the impacted systems from other connecting systems in the interest of protecting our partners and patients, to contain, assess and remediate the incident.

The Company is working diligently to restore those systems and resume normal operations as soon as possible, but cannot estimate the duration or extent of the disruption at this time. The Company has retained leading security experts, is working with law enforcement and notified customers, clients and certain government agencies. At this time, the Company believes the network interruption is specific to Change Healthcare systems, and all other systems across the Company are operational.

During the disruption, certain networks and transactional services may not be accessible. The Company is providing updates on the incident at https://status.changehealthcare.com/incidents/hqpjz25fn3n7. Please access that site for further information.

As of the date of this report, the Company has not determined the incident is reasonably likely to materially impact the Company’s financial condition or results of operations.

How to make this essentially voluntary disclosure on Form 8-K is addressed in this May 21, 2024,  Announcement from CorpFin Director Erik Gerding titled “Disclosure of Cybersecurity Incidents Determined To Be Material and Other Cybersecurity Incidents.”  In the Announcement, Mr. Gerding suggests:

“If a company chooses to disclose a cybersecurity incident for which it has not yet made a materiality determination, or a cybersecurity incident that the company determined was not material, the Division of Corporation Finance encourages the company to disclose that cybersecurity incident under a different item of Form 8-K (for example, Item 8.01).”

He notes that Form 8-K Item 1.05 is actually titled “Material Cybersecurity Incidents” and disclosure of incidents where materiality is not determined could be confusing to investors.

When considering this voluntary disclosure, companies, however, may want to use Item 7.01 (rather than Item 8.01) of Form 8-K so that the information is deemed “furnished” rather than “filed.”  Importantly, from a potential liability standpoint, information that is “furnished” — as opposed to “filed”, is not (unless the company states otherwise):

• • subject to Section 18 of the Exchange Act;
  • incorporated by reference into a registration statement, proxy statement, or other report, which means that it will not be subject to potential liability under Securities Act Section 11.

Companies should use an Item 8.01 Form 8-K only if they want the information to be considered “filed” and thus, for example, incorporated by reference into 33 Act shelf registration statements.  And while some companies may use an 8.01 Form 8-K and include a statement that the information is to be considered furnished rather than filed, such language is a nullity and of no effect – an Item 8.01 Form 8-K is in fact “filed” and such language does not change that status.  It would be the same as including language on the cover of a Form 10-K indicating that “This Annual Report on Form 10-K shall be deemed “furnished” and shall not be deemed “filed” . . .  .” – that would clearly not work.

The Announcement makes the point that it is not intended to discourage companies from making  voluntary disclosures before a materiality determination is made.  In addition, a company that filed voluntarily under a different Form 8-K Item would need to file an Item 1.05 Form 8-K if it later determined that the incident, in fact, was material.  Helpfully, the Announcement also provides a discussion of various considerations in making materiality determinations.

As always, your thoughts and comments are welcome!