Since launching its Civil Cyber-Fraud Initiative in 2021, the U.S. Department of Justice (DOJ) has secured, by our count, 17 False Claims Act cybersecurity settlements across various industries, including defense, private equity, education, and healthcare. However, the theories underlying these cases are rarely litigated. Enter Judge Sunil R. Harjani of the Northern District of Illinois, who recently dismissed a cybersecurity FCA qui tam complaint in United States ex rel. Pannek v. Archer Daniels Midland Company primarily on materiality grounds. This decision underscores the high bar relators (and the government) face when these claims are litigated even as the DOJ continues to prioritize the Civil Cyber-Fraud Initiative.
Relator Mark Pannek, a former senior IT governance and compliance official at Archer Daniels Midland Company (ADM), filed a qui tam against ADM in 2023. After the DOJ declined to intervene, Pannek filed an amended complaint, which alleges that ADM received over $1 billion in federal grants and contracts from the U.S. Department of Agriculture and the U.S. Department of Energy while “fail[ing] to remedy persistent and pervasive cybersecurity deficiencies.” Specifically, the complaint alleges that ADM created a large, unencrypted “data lake” which was accessible to hundreds of employees and contractors with no documented business justification, in addition to having deficient audit logging and inadequate encryption of sensitive data, among other...
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