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@BEGIN_FILE_ID.DIZSome more bust information
@END_FILE_ID.DIZ
10/05:CALLING-CARD THEFT RINGS GO HIGH-TECH
By SALLIE HOFMEISTER
c.1994 N.Y. Times News Service
LOS ANGELES - A $50 million telephone calling-card theft ring disclosed
earlier this week by federal investigators is representative of the advanced
types of scams that have emerged in the last two years as telephone companies
have become better at ferreting out fraud.
In contrast to older and still more common cases of calling-card fraud
involving small batches of numbers, often obtained by peering over callers'
shoulders while they are dialing public pay phones, the latest case typifies
an emerging category of inside crimes by people with computer programming
skills, telecommunications experts said.
In what is the biggest single case of telephone calling-card theft, an
employee of MCI Communications was charged last week with stealing some
60,000 card numbers from MCI and other long-distance companies that were
subsequently used to make at least $50 million worth of long-distance calls,
according to the Secret Service, the federal agency that investigates
interstate telephone fraud. The report first appeared in The Los Angeles
Times on Monday.
The Secret Service said Ivy James Lay, a switch engineer at MCI's network
center in Charlotte, N.C., sold the calling card numbers to an international
band of computer hackers.
The band, stretching from Los Angeles to Bonn, Germany, profited by selling
the numbers and by using them to pirate software and video games from on-line
computer networks, according to the Secret Service, which has been
investigating the case for four months with the help of MCI, GTE Corp. and
AT&T, and which expects to make several other arrests in the case in the next
month.
For years, theft of calling-card numbers has caused telephone companies to
lose millions of dollars in calls that are completed but never paid for.
To combat such crime, phone companies in recent years have built computer
systems that identify the unusual calling patterns that are a primary
indicator of fraud, and can enable a phone company to cut off service to
those numbers in a matter of minutes.
Rising to the challenge, calling-card fraud artists are taking their business
overseas, especially to Europe, where the public telephone networks are
highly automated enough to allow use of calling cards - but not advanced
enough in most cases to detect fraudulent calling patterns within Europe or
in calls to the United States.
And these thieves are trying to work more efficiently, by buying volumes of
calling-card numbers from telephone company employees rather than gathering
them one by one through hidden software programs designed to capture the
numbers as they pass through the computerized switching equipment that routes
calls over the phone network.
"The odds are good today that if you call from Chicago to the Dominican
Republic using an illegal number, the phone company is going to catch you
because their systems are pretty sophisticated in the United States," said
John J. Haugh, chairman of Telecommunication Advisors Inc., a
telecommunication consulting firm in Portland, Ore., that specializes in
anti-fraud techniques.
"But if you sell the numbers to Europeans, you can evade the monitoring
network."
He said a ring of what he called techno-bandits had grown up in the
Netherlands, Belgium, Italy, Spain and Germany in the last two years to
profit from the sale of long-distance numbers stolen in the United States.
Because they transact much of their business via computers, using code names,
it is hard for law enforcement officials to determine their identities. They
typically have agents in the United States who bribe telephone employees to
steal numbers for them.
In fact, Haugh estimates that as much as 20 percent of the $3.8 billion worth
of long-distance fraud this year will involve telephone company employees.
"Why bother going to an airport to shoulder-surf for two or three numbers
when you can get 20,000 of them from a telephone company employee?" he said.
In a separate case that is also being investigated by the Secret Service, Max
Louarn, an accused Spanish computer hacker, was arrested during a trip to
Washington in late September on charges of selling stolen calling card
numbers used to make at least $1.5 million of long-distance calls.
The Secret Service said Louarn bought the bulk of the numbers, at least
40,000, from an employee of Cleartel Communications, a long-distance operator
based in Washington.
Jesse Wood of the Secret Service office in Charlotte, which is heading the
investigation of Lay, said the agency was trying to determine whether the two
cases involved any of the same people.
Details of the Lay case remain sketchy, as the telephone company and federal
agents are reluctant to provide specifics because of a pending federal grand
jury investigation by the U.S. attorney's office in Charlotte.
But Secret Service officers late last month seized numerous computers,
software, diskettes, modems, logs and files said to have been used by the
handful of people Lay was said to have sold the numbers to in Los Angeles,
Seattle, Philadelphia, Minneapolis and Chicago.
Lay, who has been released on bail, is being represented by Tom Cochran, a
public defender in Charlotte, who could not be reached for comment. MCI
dismissed Lay after he was arrested.
MCI officials said that Lay had developed a software program that scanned
traffic from various phone carriers at the switching station where he worked,
which handles thousands of calls a day.
The program allowed him to pull the calling card or credit card numbers used
to place those calls. Over a period of several months, he pulled 60,000,
according to Leslie Aun, a spokeswoman for MCI.
"This is unprecedented in terms of scope and size," she said. "We have
prosecuted cases against employees but never one this big."
MCI and the other long distance companies have said they will not bill the
customers whose calling-card numbers were stolen.
James Bauer, a Secret Service agent in Los Angeles, said Lay faced felony
charges for "access device fraud," which is punishable by up to 10 years in
prison.
Bauer said Lay, known as Knightshadow in computer networking circles, sold
the numbers for $3 to $5 each to two people in Southern California, who then
resold them to people who operate computer electronic bulletin boards in at
least nine other cities.
"A certain percentage of computer bulletin boards are illegitimate," Wood,
the Secret Service agent, said. "They get to know each other through the
networks, then start talking by phone and hatch this plot: "I'll send you
these numbers if you give me access to this bulletin board.' None of them
pays for any phone calls because they all trade these calling card numbers."
The Secret Service would not disclose how much these resellers charged for
the stolen numbers, but Ms. Aun of MCI said on the street in New York,
illegal calling card numbers fetched $10 to $20 apiece for a call.
Bauer said the bulletin board operators then sold some of the numbers to
Europeans, who charged the bulk of the $50 million in long-distance services,
mainly for long-distance pirating of software and games from legitimate
computer data bases.
"The phone numbers were not their end goal for the Europeans," he said. "They
used them as a tool to cut the overhead of their business, for copying
voluminous amounts of materials over the phone lines."
Phone companies say these schemes are increasing and troublesome because they
are hard to detect and prosecute.
"Once you get beyond fraud involving immigrants calling from street pay
phones, it's hard to track," Ms. Aun said. It is not only that hackers'
identities are concealed, but once cases become international, they are
difficult to pursue. "It's hard to prosecute a case in Germany," Ms. Aun
said. "It's expensive and the police are more concerned with violent crimes."
MCI, GTE and AT&T brought this most recent case to the attention of the
Secret Service in May, after discovering unusually high volumes of illegal
calling in certain cities.
"The amount of activity was much greater than the typical shoulder-surfing,"
said Daniel Smith, a spokesman for GTE Telephone Operations, a subsidiary of
GTE. "You don't have thousands of calling cards compromised within an
individual geographic area.
Many phone companies employ former agents of the FBI and Secret Service to
penetrate the world of cyberspace looking for fraud.
In the course of monitoring bulletin boards and reading hacker magazines,
MCI, GTE and AT&T - which typically share information in tracking fraud cases
- had discovered what they thought was an organized ring of hackers in the
businesss of selling stolen calling card numbers. Once the Secret Service got
involved, they were able to trace the source to MCI's operation in
Greensboro.
Transmitted: 94-10-04 23:07:51 EDT
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