Arrest made in debit scam

Officials: Appears no store employees involved in crime

By Benjamin Bullard The Cullman Times

HANCEVILLE — At least one person has been arrested in California after being caught spending money against a local woman’s checking account in connection with what police describe as an organized wire fraud. The crime has compromised dozens of customer accounts by exploiting the electronic debit card network at one Hanceville business.

The arrest was made Thursday, after a store clerk in Colma, a small town in the San Franciso Bay area, became suspicious and notified authorities when the alleged thief tried to use a fraudulent card despite its repeatedly being declined at the point of sale. Police did not reveal the name of the man in custody.

According to Hanceville police Sgt. Danny Collins, the U.S. Secret Service is handling the investigation into how customers’ bank accounts were hacked and duplicate debit cards created and used. All the hacked accounts share one common denominator - original debit cards issued on the accounts had first been used for payment at the Dairy Queen restaurant located at 812 Main Street in Hanceville.

Police are all but certain that no current or past employee at the Hanceville Dairy Queen is to blame.

“We have pretty much ruled out employee involvement from the Dairy Queen,” said Collins. “The common thread in all the cases is that victims at some point did a debit card transaction at the Dairy Queen, but it does not appear that this crime was done on a local level or by employees. We believe it’s in the server chain arena where this has been happening.”

Secret service investigators arrived in Hanceville Thursday morning and continued their investigation Friday, pulling computer hard drives from the restaurant to retrieve stored electronic data that may ultimately reveal the manner in which account information was stolen, said Cullman City police Sgt. Rex Chambers, who is assisting in the investigation.

“We won’t know for certain exactly how this was done until the secret service can look at the hard drives and see where all the information was routed,” said Chambers. “They think that somehow the hacker did this by intercepting track 2 data off the cards at some point, but it is speculation until the investigation is complete.”

Track 2 data is data encoded in the second of two or more “tracks” in magnetic strips on the back of many financial cards, as well as some state driver’s licenses. Track 2 data in a debit card’s magnetic strip stores important account-specific alphanumeric information including card number, expiration date and the three-digit service code.

On the advice of police, the Hanceville Dairy Queen indefinitely ceased debit and card transactions Thursday.

The arrest comes as bittersweet relief to restaurant owner Rex Jordan, who said he has agonized over the possibility there might have been a criminal on his payroll.

“How could I have looked my customers in the eye, knowing that there was theft going on out there - how would I be able to sleep at night?” said Jordan. “We must run our business with honor and integrity, and it is hard to try to protect our customers from whomever is doing this when you have worried that it could have been somebody who had been working here. There's a certain amount of comfort in knowing that this is now in the hands of law enforcement that has access to how this technology works, and that the folks who have worked in this restaurant were not involved.”

Hanceville police say the thefts are estimated to have leached money tallying more than a hundred thousand dollars, so far. The final total will remain unknown until all fraudulent transactions have been caught and reported, either by account holders or by their banks. More reports of fraudulent activity are likely, police cautioned, since some electronic transactions can take days to post - and for banks to notice.

Fraudulent transactions have so far been reported in California, Virginia, Georgia and Florida, according to Hanceville police Capt. Jimmy Rodgers. Bank and deposit account fraud, Internet-based crime, and felonies that transfer stolen property across state lines are subject to federal investigation and prosecution.

“People in these locations are going into stores such as Target and purchasing multiple $100 gift cards in a single transaction,” he said. “The way they are spending the money makes it clear that they are knowingly involved in these crimes.”

While some local victims have seen their checking accounts completely wiped out, Chambers said banks will ultimately reimburse all unauthorized transactions - it just may take time.

“We’re probably looking at 100 local people whose cards have been used,” he said. “Really, the banks end up being the victim. They are the ones who will restore the funds and take the loss. There are eight banks I know of right now that have been hit by this.”

Chambers advised local debit card holders who notice suspicious activity on their accounts to contact their banks before filing police reports.

 “People simply need to notify their bank that they used their card at this particular Dairy Queen, and that their card was compromised,” said Chambers. “Once we get a total, then the banks will file reports with us. There may be instances in which a customer still needs to file a report - such as when a bank requires it before removing fraudulent charges - but people should contact their banks first before they contact the Hanceville police department.”

Electronic debit transactions are carried over a type of phone line to a computer database stored on servers at one or more off-site locations that can be hundreds of miles from the point of sale. Computer-savvy thieves can exploit their knowledge of electronic networks and how information is carried and stored electronically to siphon bank account data, giving them the raw materials they need to fashion duplicate debit cards that can then be used or sold for profit.

A Dairy Queen spokesman said Friday that the Hanceville Dairy Queen was the only Cullman County location affected by the fraud.

“The Dairy Queen at Hanceville was unfortunately the single victim of an isolated incident,” said Dean Peters, associate vice president of communications for International Dairy Queen. “When something like this occurs, unfortunately it can cause people to wonder whether other Dairy Queen restaurants in the general area were involved. But the Cullman location was not affected whatsoever by the unfortunate criminal activity that struck at the Hanceville restaurant.”

Jordan said the fraud has taken a financial and emotional toll on his business and customers who have been affected. The ordeal has been painful, but has given Hanceville victims an opportunity to embrace the good side of human nature.

“I am proud of the way people have handled it,” said Jordan. “One woman came into our store; she had had her account wiped out. She wasn’t looking for a handout, and my sister (one of the store’s managers) didn’t treat her like she was. She just wanted something for her son to eat that day. By the time she left the store, everybody was crying.

“It’s a shame the people doing this type of crime; all the knowledge and effort they dedicate to doing it...It’s a shame they cannot see the good we see in each other and use all their energy and know-how for positive effect.”

Collins noted that, while the crimes have had profound impact locally, they are not confined only to this area. “I can tell you that the server group that was hit in this crime has been affected throughout the nation, and not just in Hanceville. This is a crime that could have happened anywhere.”

The investigation is in good hands, said Chambers.

“The secret service is now in charge of the bulk of this investigation, and I can tell you - there’s none any better than the agents who are down there looking at those hard drives. They are sharp and they’ll get to the bottom of it.”

* Benjamin Bullard can be reached by e-mail at bbullard@cullmantimes.com, or by telephone at 734-2131, ext. 270.

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