Data Breaches are the New Corporate Scam

Have you received one of those emails, or know someone who has? You know, the one that says we regret to inform you that your personal data may or may not have been stolen, along with millions of other customers. There is always some long explanation, such as some employee laptops got stolen or some such nonsense. It is the typical story that sounds like the long explanation of a lie. You know what I’m talking about.

In the same email, as if by miracle, is a standard offer for identity protection by some other company, at a subscription price. Now, this is the stuff of conspiracy theories; the kind of talk that makes you lose friends and the trust of co-workers. But what if it were all planned? What if there is no data breach? What if the new subscription plan revenues are actually shared between the company that allegedly got breached, and the company that is offering protection.

I have offered up this theory on comment boards within online articles. All the responses are, of course, predictable: You are a conspiracy nut! The obvious rebuttal is, why would a company ruin their reputation intentionally just for a few extra bucks.  Well, with a little financial analysis and some good ole fashioned common sense, there is a reasonable answer.

Think about a company that is struggling to increase stock value, because their blue chip business model has ceased to grow.  Also, look at the fact that its cash flow has stagnated, or begun to recede.  This has a huge negative impact on its stock price as well.  Think about all the companies you have worked for, or read about.  You know that upper level executives come and go, and their main motivator is making some big move financially during their short tenure, and cashing out their golden parachute.

They always focus on cost-cutting. It is as if every major American corporation is some ghost ship with some of its former, original glory; and now it has been repeatedly overrun and pillaged by every pirate executive that blows through. They go after labor, they go after vendors, and they go after other executives.  Anything that they can do inside the company to reflect as a cost cut or cash flow gain on the books is going to get them promoted, and also make the company stock they own pop. It’s short-term gain, all the way.

Now imagine a company in slight decline or a slump.  Would a data breach announcement have a negative effect? Of course it would, but how big? And companies are always judged by Wall Street on improvement going forward, no matter where the current starting point. In other words, improvement is rewarded, and it can also be used as a springboard for future growth and momentum. So, even in a robbing Peter to pay Paul scheme as taking a hit in order to get some cash flow on the books, look at the long-term gain versus the short-term loss.

Let’s boil it down with an example: Health Insurance Company X has achieved number 2 or 3 status for a large market, say the Western United States. It’s stock is dipping because the competition is ruthless. Vice President of Some Department is wooed by his friends at Cyber Security Monkeys Inc. to “create” some data breach story and send it out to every customer, by mail and by email.  They have a stock email link ready for the suckers who sign up for the regular identity protection plan described, and a few bucks more for the deluxe.

Say Company X has only 5 million customers and the plan is $10 per month.  If only 20% of customers take the bait, then that is 1 million people paying an upfront fee of $10 million. Multiply that by every month, and you have $120 Million per year.  That’s a huge cash flow item to put on the corporate books. Even if the company’s stock drops by 5% in the month after the data breach, it is not a fatal flaw of operations, and it will soon rebound. Wall Street rewards these companies for recovering. Company X executives who know this will buy more stock during this dip, knowing fairly well that the following rebound will be huge.

So, if my theory is true, this is a huge conspiracy within the financial world. It involves insider trading, and stock manipulation, not to mention fraud and intentional infliction of trauma and mental distress on customers. It is a nasty, disgusting money grab, and one that runs deep. I predict that some sterling cowboy within the system will come along someday and expose it.  In the meantime, don’t fall for it. Always pulling back the curtain here, courtesy of The Free Truth.

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