Barnes & Noble Stores Targeted In Nationwide Payment Card-Skimming Scam

Rogue PIN pad devices discovered at more than 60 Barnes & Noble stores nationwide appear to be the handiwork of a well-orchestrated financial fraud scheme that rigged just one device at each store.

The retail bookseller revealed today that it had halted use of all PIN pad devices in most of its 700 stores as of Sept. 14 in the U.S. and that the FBI is investigating the case. The compromised PIN pad devices represent less than 1 percent of the total number of these devices in Barnes & Noble stores, according to the retailer. The compromised devices were found in some stores in California, Connecticut, Florida, New Jersey, New York, Illinois, Massachusetts, Pennsylvania, and Rhode Island.

Security experts say the breach, which exposed customer credit card and debit card numbers, is a chilling reminder of how even the largest retailers can't prevent this form of organized and professional-grade fraud.

"I was surprised at the size and geographic separation between the different cities and counties. It showed to me that organized crime is becoming more brazen and more widespread in gathering [stolen financial data]," says Jim Butterworth, CSO at HBGary, a division of ManTech.

Somehow, the criminals were able to gain physical access to the devices, which Barnes & Noble described as having been tampered with and implanted with "bugs" that let the fraudsters capture credit card and debit card PIN numbers.

Barnes & Noble declined to provide details on the type or features in the rigged devices, but security experts say that even PIN pads that contain tamper-resistant features can be cheated.

"There is very little that can be done to protect these devices than what is already being done today. In essence, an insider threat is the most insidious," says Gunter Ollmann, vice president of research at Damballa. "The devices are typically shipped with a number of tamper-resistant and tamper-evident features. However, it requires that staff are trained in inspecting the devices and identifying the hallmarks of tampering. Even then, the simple substitution of the device with a compromised one, where the criminals have spent time defeating the visible tampering defenses, can be achieved easily enough."

There are cases where PIN pads have shipped to retailers already compromised. A source with knowledge of such a case says one large retailer discovered that its PoS devices were shipped already compromised. Employees of the device-maker were building counterfeit, rigged devices -- some of which landed at that retailer. According to the source, the retailer, who he would not name, caught the problem quickly.

Security experts say poisoned PIN pads from the vendor is a very remote possibility in the Barnes & Noble case since only a single device was compromised at each of the stores, and there are some geographic trends among the locations that were affected, indicating a physical breach of some sort. "If you look at the list of cities and municipalities [of the stores], they are very close," HBGary's Butterworth says. "Down in San Diego, there's also Escondido and Oceanside, which are about 20 miles from one another, a drive apart."

Butterworth says the scam was likely an organized effort by a large group that was able to rig the PIN devices. An attacker could remove a jack from the point-of-sale device and insert a "bullet" that siphons card data entered by the consumer, saves it, and allows the attacker to retrieve it at another time, he says.

There are two types of communications that could be used here, he says: Bluetooth and cellular. "You can set it up with a buffer that when it reaches [a certain volume of information], it will initiate an outbound phone call" and dump the data to the bad guys, according to Butterworth. Or the attackers could use Bluetooth to transmit the stolen information to the attacker on-site: "A perpetrator could come in, grab a book and have a device in his hand .. and communicate to download" the stolen information, he says.

And it would be relatively simple to swap out a keypad when no one was looking, notes Dave Marcus, director of advanced research and threat intelligence at McAfee, a subsidiary of Intel. It would be just a matter of distracting the cashier, for instance, he says.

Damballa's Ollmann says chip-and-pin technology, which is widely deployed in Europe but not in the U.S., would have helped protect the consumers from the attacks at the bookseller that exploited the mag-stripe card format.

PIN pad-skimming devices are easy to obtain. "I was alarmed because I came across some websites where you could easily buy these devices. And there was another where a gentleman will lease you these devices in exchange for a cut" in the stolen profits, HBGary's Butterworth says.

Barnes & Noble says it's assisting the FBI in the investigation, and is working with banks and card brands to identify victim accounts. The company says its customer database "is secure," and that Barnes & Noble College Bookstores were not hit with the PIN pad scam.

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