Risk Management System Busts Data Skimming Ring

A finely tuned fraud-detection system earlier this year helped put the kibosh on a cross-country ring of payment-card thieves hitting up grocery stores in New England and stealing from ATMs in California. Now, four California men are facing several years in prison and fines of up to $250,000 for the roles they played in a skimming operation at Stop & Shop supermarkets that compromised more than 238 payment card account numbers and netted them more than $130,000. It could easily have been much worse.

Mikael Stepanian, Arutyun Shatarevyan, Gevork Baltadjian, and Arman Ter-Esayan have all pleaded guilty to conspiracy to traffic in unauthorized access devices and aggravated identity theft for stealing credit and debit card account information in February through altered supermarket point-of-sale PIN-pad terminals they planted during overnight hours at four 24-hour Stop & Shop stores in Rhode Island and one in Massachusetts.

The scam worked like this: As they entered a store, one of the men distracted a clerk while the others swapped the store's PIN-pad terminals with nearly identical devices that had been electronically altered to capture customers' account numbers and PINs, a process that took as little as 12 seconds, according to a statement released July 13 by the U.S. Attorney's Office for the District of Rhode Island. Several days later, the men returned to the store, replaced the original terminal, and made off with the altered one containing customers' account information.

As a result of this conspiracy, $132,018 in fraudulent charges were made against the compromised accounts at several financial institutions, including Citizens Bank.

But investigators at Citizens Bank noticed something fishy when they saw transactions taking place on both the West and East coasts for certain customers. Citizens soon found a common point in a series of unauthorized ATM withdrawals in their network. All of the compromised accounts had previously been used at Stop & Shop stores in Rhode Island. Alerted that their stores were being targeted by the thieves, Stop & Shop security personnel later reviewed store surveillance tapes and saw the fraudsters switching PIN-pad terminals. This led to the arrest of three of the men inside a Stop & Shop in Coventry, R.I., on Feb. 26. The fourth man was arrested in a parked car outside the store.

A search of the men's hotel rooms in Connecticut turned up devices for skimming credit and debit card information and a laptop computer with thousands of credit and debit card account numbers and PINs, stored in folders cleverly labeled "Stop & Shop." Citizens Bank relied, in part, on Proactive Risk Manager software from ACI Worldwide to detect the fraud being committed on its debit network as a result of the stolen Stop & Shop customer information. The Proactive Risk Manager system first alerted Citizens to the fraudulent activity on Feb. 10. "Our ATM velocity rule was triggered," Mark Macheska, a VP of card risk prevention at Citizens Bank, told InformationWeek, referring to how the bank monitors activity on its network.

The bank uses Proactive Risk Manager to establish a threshold for the number of transactions performed over a specified period of time on its networks for a specified dollar amount. If it sees too many big transactions in a short amount of time, red flags are raised.

The fraudulent activity observed on Feb. 10 kept up through the next day, when Citizens identified the Stop & Shop store in Cranston, R.I., as a common point of compromise. Another common point of compromise was the Stop & Shop in Coventry, R.I. In other words, all of the account numbers committing fraud on Citizens' network in California had recently been used to make purchases at that Stop & Shop thousands of miles away. "We alerted our corporate security folks that there might be skimmers at those locations," Macheska said. As it turns out, the guilty parties were traveling from California to New England every week to plant and swap out skimmer devices and collect customer data.

Once Macheska and his team were able to determine the point of compromise, they were able to query Citizens' database for all of the cards the bank had issued that had been used at those Stop & Shop locations. "We can then monitor those cards or reissue them," he said. Citizens reissued thousands of cards as a result of the skimming operation.

Detecting payment card fraud is neither foolproof nor instantaneous, but ACI Worldwide, a software maker that had until recently been known as Transaction Systems Architects, is moving in the direction of both improved accuracy and performance. "You're generally looking for a needle in a haystack when you're trying to find fraudulent transactions," Derren Jones, ACI Worldwide's director of product management for fraud and risk management, told InformationWeek. "You could be getting 100 or 1,000 transactions per second, depending up on how large you are." The company Monday introduced an online fraud-reduction calculator to help companies determine the effectiveness of their current fraud-prevention systems.

The key to keeping a lid on the Stop & Shop scam was early detection. "Stop & Shop's losses were not as bad as they could have been," Macheska said. "If we didn't have some sort of detection system in place, we would have been buried as a result of [the] Stop & Shop" data theft.

Stop & Shop's security response was low-tech but effective nonetheless. The company's stores began bolting down their point-of-sale terminals so that they couldn't be removed by customers.

Citizens is now looking to implement real-time fraud notification through ACI's Proactive Risk Manager system. "With a real-time rule, we can deny a transaction before fraud occurs," Macheska said. "You're now dealing with the authentication process. That can cut down the amount of money that's taken to begin with."