Electronic Security: Not to be Ignored –

Since the terrorist attacks, but not uncommon before them, one common complaint from buyout firms concerns the disruption from computer worms and viruses – like the widespread Nimba Virus which can interrupt all forms of electronic communication, including e-mail and Internet access.

Several sources said while they have some misgivings about viruses and have had to deal with the problem, they do not view them as major security threats. “Clearly there are industries where security is more critical to survival, and those people will pay as much as they did with Y2K – and the sky’s the limit as to what they are willing to pay to insure that the family jewels are protected,” says Brown Glenn of Allegiance Capital Corp.

Glenn does not consider most investment banks and private equity firms to be among those with need to have the greatest concern about viruses, but Alan Deane, vice president of business development at Foundstone, a computer security company, says that is often the problem. “There are a lot of people with their guard down. The more sophisticated institutions have dedicated teams, but even with the down market and financial conditions the way they are, people have had to scale back and let people go.”

In fact, he says a virus attack or a worm could easily disrupt financial institutions in worse ways than preventing e-mail. “All that [investment] information is potentially susceptible to cyber-terrorism,” Deane says. “It could be denied from people when they need to make a trade or a decision. There might be some kind of attack against them which would prevent them from doing it in a timely manner. It’s a very real threat.”

The financial crimes section of the Federal Bureau of Investigation stated similar threats to the House Committee on Financial Services this month. The FBI cited potential vulnerabilities in the financial services sector due to relationships with high-risk foreign banks, such as offshore banks with weak regulatory controls, and traditional fraud schemes with identity theft, credit cards and insurance fraud. Another warning went to non-bank financial institutions, which are frequently targets for money laundering schemes by terrorists.

Deane says the threat of a seriously disruptive attack is very conceivable due to most Americans’ state of high alert. “Because everybody’s on guard right now and very easily spooked, I don’t think it would take a lot to put people in a panic,” he says. “Especially with all the physical scares, the anthrax scares, even if it’s just a moderate type of attack, it could send people into a frenzy.”