Cost Plus Customers Compromised in Data Security Incident

Cost Plus World Market is another retailer, where customers were unknowingly giving criminals access to their bank accounts when they made a purchase.

On July 22nd, the company announced that after a thorough investigation they learned the Electronic Funds Transfer devices (PIN pads) might have been been compromised at eight Southern California stores by unauthorized third parties.

Since then three additional stores have been identified as being compromised.

The first hint of trouble was in June when two employees reported unauthorized transactions on their debit cards. By early July, the banks were reporting a unusual amount of fraud accounts that had one thing in common, they had been used at Cost Plus.

I picked up this story in an article on SignonSanDiego.com published yesterday (08/22/08). The only other mention of it, I could find was in a report by FOX News on 7/22/08.

Both the SignonSanDiego.com article and the official press release state that only debit and not credit cards have been reported compromised. Given that the hardware compromised accepts both credit and debit cards for payment, my humble guess is that credit card information might have been compromised, also. The reality is that you need both a card number and a PIN to get cash. The other reality is that card numbers can often be used without a PIN. My guess is that (at least so far) the crooks behind this were after fast cash.

Cost Plus is working with their payment card processors and the banks to identify customers, who might have been compromised. They have also brought in a external data security vendor (Verizon Business/Cybertrust) to analyze their systems. PIN pads are being replaced in all their stores, nationwide.

Compromises involving PIN pads have become more frequent in recent years. Cases are now being seen despite the fact that the retailer was compliant with payment card industry security standards. Speculation is that this is done when the information is being transmitted internally before it is transmitted to a payment card processor. Once the internal system is compromised, the hackers use sniffer programs to gather all the information and a data compromise is born.

In the early reports of PIN pad compromises, the actual PIN pads were being replaced. The crooks would later come back and in and retrieve the PIN pad to gather the payment card information or pick up via a wireless connection.

Since then my speculation is that the hacking methods being used have become more sophisticated and PCI data protection standards -- designed to protect merchants from data compromises -- might no longer be 100 percent effective.

Data compromises cost the victim affected, the retailer and the financial institutions issuing the payment cards.

I tend to write on behalf of the victim and I wanted to point to an excellent article by Tom Fragala, where he analyzes the protections offered when using credit and debit cards. General consensus is that it is a lot safer to use a credit card from a consumer point-of-view. Note I'm saying this from a security point-of-view because too much credit card debt isn't always a good thing, but that's a whole other subject.

Tom is a fellow blogger, and the CEO of a privacy friendly identity theft protection service (Truston) that just won another in what is becoming a long string of awards. They also offer a 45 day (completely) free trial to use their services.

As long as there is a lot of money to be stolen from payment cards, criminals are going to be motivated to defeat security fixes.

The recent news that one of these retail hacking rings were caught and put behind bars probably will go a lot farther in preventing data compromises than security fixes, which seem to be counter-fixed, fairly frequently.

The eleven Cost Plus Stores known to have been compromised were San Diego (372 Fourth Avenue, San Diego, CA 92101); Oceanside (2140 Vista Way, Oceanside, CA 92054); La Jolla (8657 Villa La Jolla Drive Suite 117, La Jolla, CA 92037); Mission Viejo (28341 Marquerite Parkway, Mission Viejo, CA 92692); San Dimas (638 West Arrow Highway, San Dimas, CA 91773); Valencia (25676 North The Old Road, Valencia, CA 91381); Palm Desert (44-439 Town Center Way, Palm Desert, CA 92260); Oxnard (221 Esplanade Drive, Oxnard, CA 93030); Westlake Village (Thousand Oaks) (160 Promenade Way, Westlake Village, CA 91362); Tucson East (5975 E. Broadway, Tucson, AZ 85711); and Tucson (4821 North Stone Avenue Tucson, AZ 85704).

Cost Plus also has a FAQ page for people, who think they may have been compromised.

It is no wonder why skimming (credit/debit card fraud) is becoming a nasty problem!

Skimming credit and debit cards has become too easy with the irresponsible sale of technology. All the necessary techie devices to commit what many consider a "high tech crime" are being sold on the Internet - even on auction sites - such as eBay.

Yesterday, I read about an arrest of one of the Internet vendors by the Calgary Police, after they were tipped off by the United States Secret Service (USSS).

Here is what the press release from the Calgary Police Department said:

In January 2006, investigators with the U.S. Secret Service specializing in payment card fraud and Internet crime, identified a person using the Internet name of “Dron,” who was advertising skimming equipment for sale over the Internet.

A possible Calgary connection was identified and investigators assigned to the Calgary Police Service Commercial Crime Unit were involved in the investigation.

A joint, cross-border investigation was initiated. A Calgary resident was identified as the alleged manufacturer and exporter of devices which could be used for skimming data from debit and credit cards. With the assistance of other CPS units, the Calgary case has been successfully concluded.

There isn't a lot of information on how Dron was advertising his wares on the Internet, but the sad truth is he probably isn't the only vendor selling these devices.

I checked eBay (this morning) and devices that could be used to skim payment card details are being hawked (as usual) on the auction site.

In March, I wrote about a new variation (mutation) of skimming, where PIN pads were replaced at a Edmonton Wendys. The fake PIN pads are capable of transmitting card data and PIN numbers(using wireless technology) to fraudsters, who are probably sitting in a car in a parking lot.

I suspect the current fake PIN pads are being used to defeat PCI (payment card industry) data protection standards. The information is sent to the fraudster before it goes through the merchant's point of sale system.

PCI data protection standards have become a major concern lately, but it appears the criminals are already working on countermeasures that will get past them. Besides PIN pads, portable devices, used by dishonest insiders are a big problem right now, also.

Interestingly enough, even with all the media attention about PCI compliance, a large number of merchants have failed to implement them. A case to point at would be the recent TJX data breach, where at least 45 million records were compromised over a several year period.

In the Wendy's post, I identified a website called hackershomepage.com, which sells a lot of devices that can be used to commit financial crimes, including skimming. I just checked (and sadly) they are still up and open-for-business.

Of course, they publish a disclaimer on their page:

We WILL NOT answer emails from anyone asking about illegal activities, or how to use our products for illegal activities...they will automatically be deleted. All products are designed for testing and exploring the vulnerabilities of CUSTOMER-OWNED equipment, and no illegal use is encouraged or implied. We WILL NOT knowingly sell to anyone with the intent of using our products for illegal activities or uses. It is your responsibility to check the applicable laws in your city, state, and country.

This obviously is enough to keep them in business.

The PIN pad skimming variation has now been identified in both the Eastern and Western United States, as well as Canada.

Maybe if there were stricter controls on the sale of the devices that enable skimming, the problem wouldn't be so bad?

Meanwhile, expensive security technology (compliance) is being made mandatory. If history repeats itself, any technology designed (which is expensive in itself), will have a limited life span. I'm all for technological solutions, but if we don't back them up with consequences, they tend to have a limited effectiveness.

There needs to be more social solutions (laws) to bolster some of this expensive anti-fraud technology.

With millions of victims and billions of dollars being lost, I wonder why we allow this activity to be marketed over the Internet?

We are making hard working people, like USSS Agents and the Calgary Police, work pretty hard to fight a growing problem, which is victimizing a lot of PEOPLE and businesses!

Calgary Police press release, here.

Another sad statistic, the Stop and Shop data breach

Last weekend, Stop and Shop (Quincy, MA) reported a data-breach at two of their stores in Rhode Island. After an initial investigation, they tracked the theft to two pin-pads.

Consumer Affairs has the most informative story (my opinion) on this current breach. They are reporting that with the assistance of the Secret Service, four more compromised pin-pads have been identified (all in the Rhode Island area).

Martin H. Bosworth makes an interesting point in his article that the United States hasn't been as proactive as our European friends in instituting new technology to stop debit/credit card fraud, such as chip and PIN.

Of course, implementing PCI data protection standards are not exactly 100 percent, either.

PCI data protection standards were implemented by the payment card industry, and even when they are violated, the only consequence seems to be that the merchant will be fined. The standards are designed to stop merchants from storing information they aren't supposed to.

Consumer Affairs story, here.

Of interest (in this case) is that (it appears) PIN pads were tampered with inside the stores, which makes me wonder if there is some sort of inside connection?

Tom Fragala (CEO, Truston Identity Theft Services) did a recent post on his blog, where he linked to a video on how easily a remote ATM machine can be compromised in a store, here.

Of note, Truston is the only service for victims (that I know of), where someone doesn't have to submit all their personal information to a database, which could be compromised, also.

This is a good video, but note the ATM was in a pretty concealed area, and I'm guessing that these pin-pads were in the check out lanes in stores?

Attrition.org and PogowasRight provide information on data breaches (frequently updated), here.

Someone should start a chronology of how many of the people stealing this information get caught. Unfortunately, the list wouldn't be very long.

*(Update): I must have missed that Attrition.org is recording arrests, but the results are not encouraging.

The most recent news about legislation to protect the people being victimized by this growing problem isn't good.

A recent article by Scott Bradner (Network World) about how special interests are preventing the passage of any meaningful legislation argues this point, eloquently:

The Leahey privacy bill: coddling the criminals?

PIN pads replaced at Wendys to steal payment card details

More payment cards have been skimmed (financial details hijacked) as a result of PIN pads being replaced. This time the breach occurred at a Wendys in a busy part of Edmonton, Canada.

A "Bluetooth" device was used in the phony PIN pads to transmit all the card details, using a wireless connection.

The fraud was discovered when a large number of Edmonton cards started showing up with unusual activity in Montreal.

According to the Edmonton Police, about 400 cards have been identified as having been compromised and used (cloned), but there could be more. They also stated that they don't believe there was employee involvement in the scheme.

One person was arrested in Montreal, but the authorities are saying they don't believe this person was a "major player."

This activity is probably being accomplished with a device known as a point-of-sale (POS) data logger. The stated legitimate purpose of this device (found on a webpage called hackershomepage.com) is to back up data in case of a power failure. It even advertises that it will capture PIN numbers when they are entered on a keypad.

The advertising jargon for this particular device states:

Once the data is logged, the device can be EASILY AND QUICKLY removed (takes about 2 seconds for installation or removal) from the store POS machine and plugged into another computer where you can download and save the data.

Hackers Homepage (who claims they are the only ones selling these devices) offers them for $395 each. IF you buy 100 of them, they will sell them to you for $9,999 (a savings of $30,000 off retail).

I'm amazed that these devices are for sale right over the Internet. Maybe someone in law enforcement will read this and do a little checking on this e-commerce enterprise.

Recently in Rhode Island (United States), a similar scheme was uncovered at Stop and Shop stores. Four males from California were eventually arrested after being spotted by employees tampering with a PIN pad.

Edmonton Police press release, here.

Here is my previous post on the Rhode Island scheme:

Could the arrests in the Stop and Shop data breach indicate a tie to Armenian Mobsters?

Could the arrests in the Stop and Shop data breach indicate a tie to Armenian Mobsters?

( Photo courtesy of Stop & Shop and the Rhode Island Police)

Stop & Shop has recently been in the news because of a data breach, involving compromised debit and credit card information. The data breach was traced to PIN pads that had been mysteriously replaced.

To read my original post on the Stop & Shop data-breach, link here.

Monday night, Stop & Shop employees spotted four individuals attempting to remove PIN pads at one of their stores. Police were notified, store video was shared with them, and four arrests were eventually made.

After the disclosure, Stop & Shop bolted down the PIN pads at all their stores. Some believe this helped slow the crooks down long enough to be noticed.

Despite this, some alert employees certainly deserve some recognition.

The Rhode Island police published some of the video stills of the suspects in action, here.

Ray Henry of the AP is reporting:

The men were arrested Monday night while attempting to switch keypads at a store in Coventry, police said. A store security officer called police after employees noticed one suspect trying to remove a keypad while two others were seeking to distract workers.

Arutyun Shatarevyan, 20, Mikael Stepanian, 28, Gevork Baltadjian, 20, and Arman Ter-Esayan, 22, were arrested and charged with conspiracy, computer theft and fraud. They were scheduled to be arraigned Tuesday afternoon in Kent County District Court.

Data breaches have become a huge issue, with new reports surfacing (it seems) every week. Over 100 million Americans have had their information compromised since 2005, according to the Privacy Rights Clearinghouse, which has maintained a chronology of these occurrences.

AP story, here.

Interestingly enough, the arrested individuals are from California. Judging by their surnames, they are of Armenian descent. This brings to mind a previous breach, where two fraudsters were charged after a data breach at Dollar Tree - they were also from California and have Armenian surnames.

Parkev Krmoian was arrested in the Dollar Tree episode and (at the time), a picture of his friend was being circulated (who was still at large), here.

Armenian organized crime is a big problem in Glendale (where Krimoian was from), and they are known to be involved in "lucrative white collar crimes," such as credit-card fraud. Glendale and Hollywood in Southern California has the largest Armenian population outside of Armenia.

If you are interested in learning more about Armenian organized crime, ARMENIANDIASPORA.com has a nice little write-up, here.

Placing skimming devices in public places is a growing phenomenon, Tom Fragala (MyTruston) did a great post on this (with video), here.

The video is pretty amazing!

Hannaford Brothers data breach might reveal current security standards are outdated

Hannaford Bros. Co., a grocery retailer based in the Eastern United States is the latest corporation to be victimized by a substantial data breach. Saying that, customers of Hannaford Bros. are going to be victimized, also. So will a lot of financial institutions, who have to deal with the fraud claims and trying to prevent the information from being used.

Whenever a data breach of this magnitude occurs, there are a lot of victims.

This breach occurred despite that fact Hannaford Bros. had met the payment card industry (PCI) standards for data protection and were not using wireless technology to transmit unencrypted data. Both of these factors were said to have caused the now infamous TJX breach, where approximately 98 million records were compromised.

This time only a reported 4.2 million records have been stolen, but it's still early in the game and historically these estimates tend to blossom with time.

A press release from Hannaford revealed that no personal information was stolen in this occurrence and that only payment card (credit/debit) card numbers are at risk.

Additionally, there have been 1800 reported cases of fraud tied into this data breach thus far.

Today, the AP was able to get a comment from their corporate headquarters:

It was during the card approval process that more than 4 million customer accounts at grocery stores in the Northeast and Florida were exposed to fraud, even though the company meets the latest standards for data security, a spokeswoman said Tuesday.

Hannaford Bros. Co. doesn't yet know how the breach — which began Dec. 7 and ended March 10 — occurred, said Carol Eleazer, vice president of marketing for Hannaford, based in Scarborough.

About 4.2 million credit and debit card numbers were exposed and at least 1,800 stolen during the seconds it takes for that information to travel to credit card companies for approval after customers swiped their cards in checkout-line machines, Eleazer said.

Brian Krebs of the Washington Post, who does the Security Fix blog quoted an industry expert, Bryan Sartin at Cybertrust as stating:

"I would say a trend we're seeing hitting a lot of retailers right now is that these organizations can be [compliant with the credit card industry security standards] and still have customer data stolen," Sartin said. "The data in transit is allowed to traverse private links and internal infrastructure without being encrypted, and the attackers are taking advantage of that."

Once these systems have been compromised, Sartin said, the attackers typically eavesdrop on the network using "sniffer" programs that can extract credit and debit card data as it moves across the wire, before it even leaves the store's network.

If the theory in Security Fix is pans out (probably will), some precedents might exist for the basic method the hackers used. The incidents, I will reference don't sound as sophisticated as what Mr. Sartin is describing, but they happened about a year ago and hacking methods tend to mature with age.

Stop and Shop was the subject of a data breach a little over a year ago. In this case, PIN pads were being replaced with "look-alike" devices that captured all the payment card details. This hardware was later removed to download all the information that had been captured when unsuspecting customers swiped their cards.

Shortly thereafter, another compromise of this type was reported in Edmonton, Canada. In this case, a blue tooth device was used to transmit the information to a waiting car in the parking lot.

The trend with PIN pad replacement continued with a smaller breach at a grocer in the San Francisco Bay area, Albertsons in April of 2007. At the time, I had the pleasure of speaking with Blanca Torres, who was doing an article on the story.

Interestingly enough, up North in Canada, where payment card skimming has increased six-fold in recent years, an announcement was made that they plan to introduce a smart card. This technology, which is known as "chip and PIN" is already in use in Great Britain and France.

The AHN story about this by Vittorio Hernandez included (what I consider) a sage comment:

But Peter Woolford of the Retail Council of Canada is wary that although the smart cards appear to be effective in reducing incidents of fraud, sinister minds may one day find a way to hack the smart chips. "Anything the human brain puts together, another human brain can take apart," Woolford pointed out.

Sadly, once this all pans out, it will likely reveal that PCI data protection standards can and will be compromised in the future. The reason, I say sad is because a lot of retailers have spent a lot of money becoming compliant.

Throw in all the finger pointing and litigation between the different parties in all these breaches and I fear we're going to be fighting a very costly battle over what is becoming a too common item in the news.

I'll sum this post up with a rant, I wrote when the TJX breach was attracting a lot of attention:

While everyone sues TJX, the criminals are laughing all the way to the bank

Press release from Hannaford about the breach, here. They list a telephone number on it, where more information can be obtained if you think you've become a statistic.

San Diego Regional Fraud Task Force releases photos of suspected ATM skimmers

Devices to skim payment card information have become a big problem, whether they are portable devices used by dishonest employees at restaurants, PIN pads replaced at merchants, or devices mounted on ATM machines.

Many of the devices used recently -- use wireless technology -- and the card details are transmitted to fraudsters, normally sitting in a vehicle with a laptop.

The San Diego Regional Fraud Task Force is hot on the trail of two suspects, photographed using some of the cloned cards. Cloned cards are counterfeit devices made with the information skimmed from legitimate (credit/debit) payment cards.

Unfortunately, most of the equipment to do this, can be purchased, legally. Some of this equipment is even being sold over the Internet. Loose controls on the sale of this technology -- enables a lot of criminal activity, makes it harder for law enforcement to investigate -- and a lot of people are being victimized by it.


SignOnSanDiego.com reports:

Police are warning ATM users that scammers are using high-tech devices to steal their bank account information, including debit and credit cards numbers and personal identification codes.

Police have released photos taken from surveillance video of two suspects. Anyone with information about either man is asked to call the task force at (619) 744-2534 or the U.S. Secret Service at (619) 557-5640.

The pictures of the current people of interest in this case are featured above (to the left).

I did a post with some interesting pictures of an ATM skimming device, which are pretty educational, can be seen, here.

For other articles about payment card skimming, click here.

SignOnSanDiego.com story, here.

A lot of the skimming in the United States seems to be tied into Armenian organized crime. Glendale, which is a couple of hours North of San Diego, seems to be where a lot of this activity originates.

Maybe someone should post these pictures in the Glendale area?



Skimming device discovered at a gas (petrol) station in the United Kingdom (Courtesy of Flickr). The expression on the employee's face is worth a thousand words.