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Yahoo's Support to Email Surveillance Fuels Privacy Concerns


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Yahoo! Inc. (YHOO - Analyst Report) has reportedly assisted in government investigation to scan for some specific information sought by the Federal Bureau of Investigation (FBI).

On Wednesday, the New York Times reported that Yahoo made some modifications to its system of scanning emails for child pornography and spam to help the government search for emails that contain a specific digital signature linked with a foreign terrorist organization.

This follows a Reuters report on Tuesday per which Yahoo developed a custom software program to scan all of its users’ incoming emails for particular information demanded by the FBI.

We note that Section 702 of the 2008 FISA Amendment Act allows U.S. intelligence agencies to collect information on non- U.S. citizens. However, the law calls for its use in specific cases and the government is not allowed to collect data in bulk.

If the news is true, it will surely raise privacy concerns, leading to the demand for reforming this law.  

The “Prism” Agreement

A few years back, former NSA contractor Edward Snowden had revealed that major Internet companies like Google (GOOGL - Analyst Report) , Facebook (FB - Analyst Report) and Yahoo and the National Security Agency (NSA) had set up a data-collection program known as “Prism” under a secret court order, which gives the government the right to go through e-mails, pictures and videos stored with these companies.

It appears that Yahoo worked with the government in compliance with this court order. To avoid the troubles that Yahoo is facing now, Google and Microsoft (MSFT - Analyst Report) have already issued statements confirming their non-involvement in any government surveillance program.

Yahoo stated that the Reuters story was “misleading” but refused to comment on the Times' story. What is noticeable is that the company is not directly denying the fact.

What Experts Say

The news has undoubtedly revived privacy concerns and raised questions about the government’s right to sift through people’s personal information.

According to Kurt Opsahl general counsel for the Electronic Frontier Foundation, a digital rights group," This is a troubling vision of the future where there might be massive government surveillance done with computers." "The government may well say they were only targeting a string of characters used by a foreigner, but it just so happened that hundreds of millions of innocent people also had their emails examined too," he added.

Patrick Toomey, a staff attorney with the American Civil Liberties Union, called the government order "unprecedented and unconstitutional."

Odia Kagan, a Philadelphia-based data privacy attorney stated that the legitimacy of government requests cannot be judged under circumstances that are still shadowy.


The Nightmare Continues

The news comes on the heels of Yahoo publically admitting a massive cyber-attack that took place in 2014. It led to theft of personal information of about 500 million users. The company has not only been sued but also faced senators’ ire for such a late confirmation of the data breach.   

Yahoo is in the process of selling its core assets to Verizon for $4.8 billion. It will be quite interesting to see how all these affect the deal. We believe that the disclosures could have a significant impact if Verizon finds a material adverse change (MAC) in the period between signing and closing. 

So far Verizon has not commented on the scanning of the emails.

Zacks Rank

Currently, Yahoo is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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