Montgomery Ward breached, no notification obligation?
Technorati Tag: Security Breach
Date Reported:
6/27/08
Organization:
Direct Marketing Services Inc.
Contractor/Consultant/Branch:
Montgomery Ward
HomeVisions.com
SearsHomeCenter.com
SearsShowPlace.com
SearsRoomForKids.com
Victims:
Customers
Number Affected:
"at least 51,000 records"
Types of Data:
Names, addresses, phone numbers, card numbers, "security codes", and expiration dates
Breach Description:
"NEW YORK (AP) -- The parent company of Montgomery Ward is admitting that it was hit with a credit card hack, but it didn't inform the customers affected."
Reference URL:
The Associated Press via WZTV Channel 17 News
Report Credit:
The Associated Press
Response:
From the online sources cited above:
At least 51,000 records were exposed in the breach at the parent company of Montgomery Ward.
The venerable Wards chain that began in 1872 went out of business in 2001, but in 2004 a catalog company, Direct Marketing Services Inc., bought the brand name out of bankruptcy.
Direct Marketing Services' CEO, David Milgrom, said the financial company Citigroup detected the computer invasion in December.
By going through HomeVisions.com, another Direct Marketing Services site, hackers had plundered the database that holds account information for all the company's retail properties.
[Evan] The AP story names five of the six Direct Marketing Services retail properties (See Above). I don't know what the sixth is.
It now runs a Wards.com Web site along with six other sites, including three with Sears brands it has acquired: SearsHomeCenter.com, SearsShowplace.com and SearsRoomforKids.com
Milgrom said Direct Marketing Services immediately informed its payment processor and Visa and MasterCard.
Direct Marketing Services closely followed a set of guidelines, issued by Visa, on how to respond to a security breach.
[Evan] This is sad. The Visa documentation regarding breach response is way too narrowly focused to be used as an organizational incident response. Every organization that creates, collects, uses, stores, and/or transfers confidential information should have an incident response policy and accompanying procedures. Take a look at the Visa "What To Do if Compromised" procedures, and judge for yourself.
That included a report to the U.S. Secret Service.
He said he believed by the end of December that Direct Marketing Services had met its obligations.
[Evan] Mr. Milgrom is the president of the company. He really thought that his company had met all of its obligations with respect to this breach? It never occurred to him that he should notify customers, even if he weren't required to by law? Not only was the lack of notification illegal, but I think it is also unethical.
However, those guidelines from Visa are largely technical, and they do not cover a key additional step: that notification laws in nearly every state generally require organizations that have been hacked to come clean to the affected consumers, not just to the financial industry.
Companies that fail to comply can be hit with fines or be sued by affected customers, depending on the state
After being asked about those laws by The Associated Press, Milgrom said Direct Marketing Services now plans to contact consumers.
This hack might have stayed quiet except for online chatter detected in June by Affinion Group Inc.'s CardCops, a group of investigators who track payment-card theft for financial institutions.
In Internet chat rooms frequented by card thieves, CardCops spotted hackers touting the sale of 200,000 payment cards belonging to one merchant.
CardCops then intercepted several hundred of the records, along with the online handles belonging to hackers whose real names remain unknown.
Along with the card numbers, their three-digit "security codes" and expiration dates, the thieves had the cardholders' names, addresses and phone numbers.
The data had been organized in the same way, indicating the numbers likely came from the same database.
CardCops' president, Dan Clements, also noticed that the vast majority of the cardholders were women, a clue that the records came from a merchant catering to a certain demographic.
When he began calling them, the first eight said they had bought things online or through mail order from Montgomery Ward. At that point, Clements realized, "there's a high probability the entire database of Montgomery Ward was breached."
[Evan] This is some good investigative work.
It is not clear to Clements, though, whether the hackers were inflating their claim when they offered 200,000 records or whether Milgrom's number of 51,000 is accurate.
[Evan] According to the article, the "hackers" were able to compromise the information from all six Direct Marketing Services, Inc. properties. 51,000 may be Montgomery Wards customer accounts, and the remainder could be from the other five properties (just speculating).
A spokeswoman for Discover Financial Services LLC, Mai Lee Ua, said her company had addressed the problem by sending new cards to its cardholders who appeared in the compromised records.
Ua said they weren't told which merchant had been breached
Visa declined to comment.
[Evan] Visa always declines to comment. No sense in even seeking one.
MasterCard issued a statement Friday acknowledging it was aware of the breach at Direct Marketing Services, and had notified the banks that issue MasterCards, telling them to monitor the accounts for suspicious charges.
[Evan] Three different card companies, three entirely different responses. Of the three, I think I like the Discover one the best.
Such silence was the norm in the industry for years. But in response to fears of identity theft, 44 states have passed laws that generally require organizations holding consumer data to tell people when their information has leaked
Clements and other security analysts say that despite those laws, many breaches still are kept quiet, judging by the data being hawked in online black markets.
Avivah Litan, an analyst at Gartner Inc., believes unreported data breaches might still outnumber the ones that do get publicized.
[Evan] I absolutely agree. You would be naïve to think that victim notifications go out in all breaches. Too many corporate leaders would rather not notify and hope that nobody notices.
Litan says it especially is the case with online merchants. She believes it happens because of a lack of pressure from credit card companies, which are not responsible for fraudulent charges in "card not present" transactions over the Web and mail order.
Until fraud actually appears on the card, they'd rather avoid the cost of voiding compromised cards and giving consumers new ones, she said.
"What it reveals is the convoluted banking system," she said. "If this had taken place at a grocery store, we all would have heard about it."
In fact, because of the silence that still sometimes follows data breaches, even people who have never been informed one of their records has leaked should assume their information is floating online, Litan said.
"Probably every one of our cards is up there somewhere now," she said.
[Evan] I agree with all of the statements made by Avivah Litan except this one. This is a stretch.
On the Net:
Links to the 44 state notification laws
Commentary:
Is this a case of a company that was caught trying to cover up a breach, or was this a company that didn't know any better? I lean towards the former. Either way, is ignorance of the law any kind of valid excuse?
Let's assume for a second that company really didn't know that they were required to notify victims. If this were true, then this leads me to believe that the company doesn't govern information security well (due care?), probably has no formal information security program, lacks incident response policy and procedures, and doesn't manage risk well.
I could only guess how the "hack" took place. What vulnerability was exploited? Even in this, the company appears to have not detected the attack. Direct Marketing Services, Inc. had to be told of it by Citibank. Does this mean that the company did not use intrusion detection/prevention?
I could go on and on, but in the end I don't have much confidence here.
Past Breaches:
Unknown
Date Reported:6/27/08
Organization:
Direct Marketing Services Inc.
Contractor/Consultant/Branch:
Montgomery Ward
HomeVisions.com
SearsHomeCenter.com
SearsShowPlace.com
SearsRoomForKids.com
Victims:
Customers
Number Affected:
"at least 51,000 records"
Types of Data:
Names, addresses, phone numbers, card numbers, "security codes", and expiration dates
Breach Description:
"NEW YORK (AP) -- The parent company of Montgomery Ward is admitting that it was hit with a credit card hack, but it didn't inform the customers affected."
Reference URL:
The Associated Press via WZTV Channel 17 News
Report Credit:
The Associated Press
Response:
From the online sources cited above:
At least 51,000 records were exposed in the breach at the parent company of Montgomery Ward.
The venerable Wards chain that began in 1872 went out of business in 2001, but in 2004 a catalog company, Direct Marketing Services Inc., bought the brand name out of bankruptcy.
Direct Marketing Services' CEO, David Milgrom, said the financial company Citigroup detected the computer invasion in December.
By going through HomeVisions.com, another Direct Marketing Services site, hackers had plundered the database that holds account information for all the company's retail properties.
[Evan] The AP story names five of the six Direct Marketing Services retail properties (See Above). I don't know what the sixth is.
It now runs a Wards.com Web site along with six other sites, including three with Sears brands it has acquired: SearsHomeCenter.com, SearsShowplace.com and SearsRoomforKids.com
Milgrom said Direct Marketing Services immediately informed its payment processor and Visa and MasterCard.
Direct Marketing Services closely followed a set of guidelines, issued by Visa, on how to respond to a security breach.
[Evan] This is sad. The Visa documentation regarding breach response is way too narrowly focused to be used as an organizational incident response. Every organization that creates, collects, uses, stores, and/or transfers confidential information should have an incident response policy and accompanying procedures. Take a look at the Visa "What To Do if Compromised" procedures, and judge for yourself.
That included a report to the U.S. Secret Service.
He said he believed by the end of December that Direct Marketing Services had met its obligations.
[Evan] Mr. Milgrom is the president of the company. He really thought that his company had met all of its obligations with respect to this breach? It never occurred to him that he should notify customers, even if he weren't required to by law? Not only was the lack of notification illegal, but I think it is also unethical.
However, those guidelines from Visa are largely technical, and they do not cover a key additional step: that notification laws in nearly every state generally require organizations that have been hacked to come clean to the affected consumers, not just to the financial industry.
Companies that fail to comply can be hit with fines or be sued by affected customers, depending on the state
After being asked about those laws by The Associated Press, Milgrom said Direct Marketing Services now plans to contact consumers.
This hack might have stayed quiet except for online chatter detected in June by Affinion Group Inc.'s CardCops, a group of investigators who track payment-card theft for financial institutions.
In Internet chat rooms frequented by card thieves, CardCops spotted hackers touting the sale of 200,000 payment cards belonging to one merchant.
CardCops then intercepted several hundred of the records, along with the online handles belonging to hackers whose real names remain unknown.
Along with the card numbers, their three-digit "security codes" and expiration dates, the thieves had the cardholders' names, addresses and phone numbers.
The data had been organized in the same way, indicating the numbers likely came from the same database.
CardCops' president, Dan Clements, also noticed that the vast majority of the cardholders were women, a clue that the records came from a merchant catering to a certain demographic.
When he began calling them, the first eight said they had bought things online or through mail order from Montgomery Ward. At that point, Clements realized, "there's a high probability the entire database of Montgomery Ward was breached."
[Evan] This is some good investigative work.
It is not clear to Clements, though, whether the hackers were inflating their claim when they offered 200,000 records or whether Milgrom's number of 51,000 is accurate.
[Evan] According to the article, the "hackers" were able to compromise the information from all six Direct Marketing Services, Inc. properties. 51,000 may be Montgomery Wards customer accounts, and the remainder could be from the other five properties (just speculating).
A spokeswoman for Discover Financial Services LLC, Mai Lee Ua, said her company had addressed the problem by sending new cards to its cardholders who appeared in the compromised records.
Ua said they weren't told which merchant had been breached
Visa declined to comment.
[Evan] Visa always declines to comment. No sense in even seeking one.
MasterCard issued a statement Friday acknowledging it was aware of the breach at Direct Marketing Services, and had notified the banks that issue MasterCards, telling them to monitor the accounts for suspicious charges.
[Evan] Three different card companies, three entirely different responses. Of the three, I think I like the Discover one the best.
Such silence was the norm in the industry for years. But in response to fears of identity theft, 44 states have passed laws that generally require organizations holding consumer data to tell people when their information has leaked
Clements and other security analysts say that despite those laws, many breaches still are kept quiet, judging by the data being hawked in online black markets.
Avivah Litan, an analyst at Gartner Inc., believes unreported data breaches might still outnumber the ones that do get publicized.
[Evan] I absolutely agree. You would be naïve to think that victim notifications go out in all breaches. Too many corporate leaders would rather not notify and hope that nobody notices.
Litan says it especially is the case with online merchants. She believes it happens because of a lack of pressure from credit card companies, which are not responsible for fraudulent charges in "card not present" transactions over the Web and mail order.
Until fraud actually appears on the card, they'd rather avoid the cost of voiding compromised cards and giving consumers new ones, she said.
"What it reveals is the convoluted banking system," she said. "If this had taken place at a grocery store, we all would have heard about it."
In fact, because of the silence that still sometimes follows data breaches, even people who have never been informed one of their records has leaked should assume their information is floating online, Litan said.
"Probably every one of our cards is up there somewhere now," she said.
[Evan] I agree with all of the statements made by Avivah Litan except this one. This is a stretch.
On the Net:
Links to the 44 state notification laws
Commentary:
Is this a case of a company that was caught trying to cover up a breach, or was this a company that didn't know any better? I lean towards the former. Either way, is ignorance of the law any kind of valid excuse?
Let's assume for a second that company really didn't know that they were required to notify victims. If this were true, then this leads me to believe that the company doesn't govern information security well (due care?), probably has no formal information security program, lacks incident response policy and procedures, and doesn't manage risk well.
I could only guess how the "hack" took place. What vulnerability was exploited? Even in this, the company appears to have not detected the attack. Direct Marketing Services, Inc. had to be told of it by Citibank. Does this mean that the company did not use intrusion detection/prevention?
I could go on and on, but in the end I don't have much confidence here.
Past Breaches:
Unknown
Posted by Evan Francen at 6/27/2008 11:31 PM 
Categories: SearsRoomForKids.com, Hack, HomeVisions.com, Intrusion, Direct Marketing Services, Montgomery Ward, SearsHomeCenter.com, SearsShowPlace.com
Categories: SearsRoomForKids.com, Hack, HomeVisions.com, Intrusion, Direct Marketing Services, Montgomery Ward, SearsHomeCenter.com, SearsShowPlace.com
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