McColo was a San Jose-based web hosting service provider. In late 2008, the company was shut down by two upstream providers, Global Crossing and Hurricane Electric, because a significant amount of malware and botnets had been trafficking from the McColo servers.
McColo systems had a security breach. 
The statement 'McColo systems had a security breach' is definitely correct because the context say's 'a significant amount of malware and botnets had been trafficking from the McColo servers'. This security breach of the McColo systems led to the company being shut down. I think it was difficult for the system because it didn't understand that the term 'security breach' related to the situation of malware and botnets being trafficked on the servers.  