Target says it declined to act on early alert of cyber breach

By Jim Finkle and Susan Heavey

BOSTON/WASHINGTON (Reuters) - Target Corp's (NYS:TGT) security software detected potentially malicious activity during last year's massive data breach, but its staff decided not to take immediate action, the No. 3. U.S. retailer said on Thursday.

"With the benefit of hindsight, we are investigating whether if different judgments had been made the outcome may have been different," company spokeswoman Molly Snyder said in a statement.

The disclosure came after Bloomberg Businessweek reported on Thursday that Target's security team in Bangalore had received alerts from a FireEye Inc (FEYE.O) security system on November 30 after the attack was launched and sent them to Target headquarters in Minneapolis.

The FireEye reports indicated malicious software had appeared in the system, according to a person whom Bloomberg Businessweek had consulted on Target's investigation but was not authorized to speak publicly on the matter.

The alert from FireEye labeled the threat with the generic name "malware.binary," according to Bloomberg Businessweek. Two security experts who advise organizations in responding to cyber attacks and both have experience using FireEye technology said that security personnel typically don't get excited about such generic alerts because FireEye does not provide much information about those threats.

The experts said that they believed it was likely that Target's security team received hundreds of such alerts on a daily basis, which would have made it tough to have singled out that threat as being particularly malicious.

"They are bombarded with alerts. They get so many that they just don't respond to everything," said Shane Shook, an executive with Cylance Inc. "It is completely understandable how this happened."

John Strand, owner of Black Hills Information Security, said that it was easy to paint Target as being incompetent, given the severity of the breach, but that it was not fair to do so.

"Target is a huge organization. They probably get hundreds of these alerts a day," he said. "We can always look for someone to blame. Sometimes it just doesn't work that way."

Target Chief Financial Officer John Mulligan told a congressional committee in February that the company only began investigating after on December 12, when the U.S. Justice Department warned the company about suspicious activity involving payment cards. Within three days, nearly all the malicious software had been removed from Target's cash registers, he said.

FOLLOW-UP DIDN'T SEEM WARRANTED

"Through our investigation, we learned that after these criminals entered our network, a small amount of their activity was logged and surfaced to our team. That activity was evaluated and acted upon," Snyder said. "Based on their interpretation and evaluation of that activity, the team determined that it did not warrant immediate follow up."

Target shares fell 2 percent to $59.86 in late afternoon trading on the New York Stock Exchange after the company released the statement.

Some 40 million payment card records were stolen from the retailer, along with 70 million other records with customer information such as addresses and telephone numbers.

Congress is investigating the breach along with lapses at other retailers, and credit card companies were pushing for better security.

Target also faces dozens of potential class-action lawsuits and action from banks that could seek reimbursement for millions of dollars in losses due to fraud and the cost of card replacements.

A spokesman for FireEye declined to comment. FireEye (FEYE.O) shares were up 1.8 percent at $79.05 on Nasdaq.

Representatives for the U.S. Secret Service and Verizon Communications Inc (VZ.N), which are investigating Target's breach, declined to comment.

FireEye has a function that automatically deletes malicious software, but it had been turned off by Target's security team before the hackers' attack, the Bloomberg report said, citing two people who audited FireEye's role after the breach.

Shook and Strand said that the vast majority of FireEye's customers turn off that functionality because it is known for incorrectly flagging data as malware, which can halt email and Web traffic for business users.

"FireEye ... is cutting edge," Strand said. "But it takes love and care and feeding. You have to watch it and monitor it."

(Editing by Stephen Powell, Richard Valdmanis, Amanda Kwan and Cynthia Osterman)