Krebs on Security

States Seek Better Mousetrap to Stop Tax Refund Fraud

June 2, 2015

With the 2014 tax filing season in the rearview mirror, state tax authorities are struggling to incorporate new approaches to identifying and stopping fraudulent tax refund requests, a $6 billion-a-year problem that’s hit many states particularly hard this year. But some states say they are encountering resistance to those efforts on nearly every front, from Uncle Sam to online tax vendors and from the myriad of financial firms that profit handsomely from processing phony tax refunds.

Cash Cow: Check out this primer on which companies are profiting from tax refund fraud.

Cash Cow: Click on the image above for a primer on how many companies are profiting from tax refund fraud.

Last week, the Internal Revenue Service (IRS) disclosed that thieves had stolen up to $50 million in phony refunds by pulling tax data on more than 100,000 Americans directly from the agency’s own Web site. The thieves were able to do this for the same reason that fraudsters are able to get away with filing and getting paid for bogus refunds: The IRS, the states and the tax preparation firms all try to authenticate filers based on static identifiers about the filer — such as birthdays and Social Security numbers, as well as answers to a handful of easily-guessed or researched “knowledge based-authentication” questions.

I spoke at length with several state tax commissioners about the size and scope of the tax refund fraud problem, and what the IRS and the states are doing to move beyond reliance on static identifiers to authenticate taxpayers. One of the state experts I spoke with was Julie Magee, commissioner of Alabama’s Department of Revenue.

Magee described her work on a new task force organized by the IRS aimed at finding solutions for reducing the tax refund fraud problem across the board. Magee is one of several folks working on a fraud and authentication working group within the IRS’s task force, which is trying to come to a consensus about ways to do a better job authenticating taxpayers and to improve security around online tax preparation services such as TurboTax.

Earlier this year, TurboTax briefly suspended the online filing of state tax returns after dozens of state revenue departments complained about a massive spike in fraudulent refund requests — many of which were tied back to hijacked or fraudulently-created TurboTax accounts.

One of those victimized in that scourge was Joe W. Garrett, — Magee’s deputy commissioner — who had a $7,700 fraudulent return filed in his name after thieves created a duplicate TurboTax account with his personal information.

Magee said her working group — one of three on the IRS’s task force — is populated by stakeholders with competing agendas.

“You have companies like Intuit that don’t want the government getting into the online tax preparation business, and then there are the bricks-and-mortar operations like Liberty and H&R Block that don’t want to see their businesses cannibalized by the do-it-yourself online firms like TurboTax,” Magee said. “And then we have the banking industry, which is making a fortune off of this whole problem. Right now, the only entities that are really losing out are states and the US Treasury.” (For a look at which companies stand to profit from fraudulent refunds, see this sidebar).

In February, KrebsOnSecurity published exclusive interviews with two former TurboTax security professionals who accused TurboTax of making millions of dollars knowingly processing state and federal tax refunds filed by identity thieves. Magee said Intuit — the company that owns TurboTax — came to the first two working group meetings with a plan to provide states with an anti-fraud screening mechanism similar to Apple Pay‘s “green/yellow/red path” program, which seeks to offer participating banks some idea of the relative likelihood that a given new customer is in fact a fraudster signing up in the name of an ID theft victim.

“The first two meetings, Intuit acted like they were leading the charge on this, and they were really amenable to everything,” Magee said. “They had come up with an idea that was very much like the red- yellow-green kind of thing, and they were asking us what data elements they should be looking at and sharing.”

According to the Alabama tax commissioner, that’s when the American Coalition for Taxpayer Rights (ACTR), a trade group representing the tax preparation firms, stepped in. “The lobbyist group put the kibosh on that idea. They basically said it’s not their right to be the police – that it should be the IRS or the states — but that they would be more than willing to send us the indicators and that we could use our own system to do the scoring,” Magee said. “The states aren’t hung up on getting some red, yellow, green type system. I think we’re more interested in making sure data elements we can use to make a score are passed on to us.”

Magee said ACTR also protested that tax prep firms like Intuit couldn’t legally share certain information about their customers with the states and the IRS. Representatives with ACTR did not respond to requests for comment. Intuit declined to be interviewed for this story.

“They threw up a red flag and basically said, ‘We can’t you pass that information because it’s protected by IRS code sections regarding taxpayer confidentiality issues,'” Magee recalled. “Thankfully, the IRS brought in their attorneys and the commissioner a few weeks ago and they said, ‘That’s bunk, you can most certainly send that information to us and to the states. So we won that battle.” Continue reading →

Phony Tax Refunds: A Cash Cow for Everyone

June 2, 2015

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When identity thieves filed a phony $7,700 tax refund request in the name of Joe Garrett, Alabama’s deputy tax commissioner, they didn’t get all of the money they requested. A portion of the cash went to more than a half dozen U.S. companies that each grab a slice of the fraudulent refund, including banks, payment processing firms, tax preparation companies and e-commerce giants.

When tax scammers file a fraudulent refund request, they usually take advantage of a process called a refund transfer. That allows the third party firm that helped prepare and process the return for filing (e.g. TurboTax) to get paid for their services by deducting the amount of their fee from the refund. Effectively, this lets identity thieves avoid paying a dime to TurboTax or other providers for processing the return.

In Garrett’s case, as with no doubt countless other fraudulent returns filed this year, the thieves requested that the return be deposited into a prepaid debit card account, which they could then use as a regular debit card to pay for goods and services, and/or use at ATMs to withdraw the ill-gotten gains in cash.

What’s more, the crooks asked the government to deposit $2,000 of the $7,700 they applied for in his name to an Amazon gift card ($2,000 is the maximum allowed under the Amazon gift card program). This is just another way for thieves to hedge their bets in case the debit card to which the majority of the stolen funds gets canceled.

“There are so many people making money off of electronic transfer of funds, it’s ridiculous,” said Julie Magee, Garrett’s boss and commissioner of Alabama’s Department of Revenue. “Five different financial institutions touched the fraudulent refund they filed in Joe’s name before it went to the thieves.” Continue reading →

Malware Evolution Calls for Actor Attribution?

May 31, 2015

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What makes one novel strain of malicious software more dangerous or noteworthy than another? Is it the sheer capability and feature set of the new malware, or are these qualities meaningless without also considering the skills, intentions and ingenuity of the person wielding it? Most experts probably would say it’s important to consider attribution insofar as it is knowable, but it’s remarkable how seldom companies that regularly publish reports on the latest criminal innovations go the extra mile to add context about the crooks apparently involved in deploying those tools.

Perhaps with some new malware samples, the associated actor attribution data is too inconclusive to publish —particularly when corporate lawyers are involved and such findings are juxtaposed to facts about a new code sample that can be demonstrated empirically. Maybe in other cases, the company publishing the research privately has concerns that airing their findings on attribution will somehow cause people to take them or the newfound threat less seriously?

I doubt many who are familiar with my reporting will have trouble telling where I come down on this subject, which explains why I’m fascinated by a bit of digging done into the actor behind a new malware sample that recently received quite a bit of media attention. That threat, known variously as “Rombertik” and “Carbon Grabber,” is financial crimeware that gained media attention because of a curious feature: it was apparently designed to overwrite key sections of the hard drive, rendering the host system unbootable.

News about Rombertik’s destructive ways was first published by Cisco, which posited that the feature was a defense mechanism built into the malware to frustrate security researchers who might be trying to unlock its secrets. Other security firms published competing theories about the purpose of the destructive component of the malware. Some argued it was the malware author’s way of enforcing licensing agreements with his customers: Those who tried to use the malware on Web addresses or domains that were not authorized as part of the original sale would be considered in violation of the software agreement — their malware infrastructure thus exposed to (criminal) a copyright enforcement regime of the most unforgiving kind.

Incredibly, none of these companies bothered to look more closely at the clues rather clumsily left behind by the person apparently responsible for spreading the malware sample that prompted Cisco to blog about Rombertik in the first place. Had they done so, they might have discovered that this ultra-sophisticated new malware strain was unearthed precisely because it was being wielded by a relatively unsophisticated actor who seems to pose more of a threat to himself than to others.

AFRICAN PERSISTENT THREAT

As much as I would love to take credit for this research, that glory belongs to the community which has sprung up around ThreatConnect, a company that specializes in threat attribution with a special focus on crowdsourcing raw actor data across a large community of users.

In this case, ThreatConnect dug deeper into centozos[dot]org[dot]in, the control server used in the Rombertik sample featured in the original Cisco report. The Web site registration records for that domain lists an individual in Lagos, Nigeria who used the email address genhostkay@dispostable.com. For those unfamiliar with Dispostable, it is a free, throwaway email service that allows anyone to send and receive email without supplying a password for the account. While this kind of service relieves the user of having to remember their password, it also allows anyone who knows the username to read all of the mail associated with that account.

KallySky’s inbox at Dispostable.

Continue reading →

Phishing Gang is Audacious Manipulator

May 28, 2015

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Cybercriminals who specialize in phishing — or tricking people into giving up usernames and passwords at fake bank and ecommerce sites — aren’t generally considered the most sophisticated crooks, but occasionally they do exhibit creativity and chutzpah. That’s most definitely the case with a phishing gang that calls itself the “Manipulaters Team”, whose Web site boasts that it specializes in brand research and development.

I first learned about the Manipulaters from a source at an Australian bank who clued me in to a phishing group that specializes in targeting Apple’s iCloud services and a whole mess of U.S., European and Asian banks. For whatever reason (probably because they’re proud of their work), these guys leave a calling card of sorts in the WHOIS Web site registration records for most of the phishing domains that they register: According to Domaintools.com, some 329 domains are registered to “admin@manipulaters[dot]com” (complete list of domains: in PDF and CSV).

The Web site for the “Manipulaters Team,” a phishing gang that brazenly advertises a specialization in “brand research.”

Manipulaters[dot]com is a pretty amusing site all around. Their home page advises that Mainpulaters “is an institute that caters to brand research & development. We have studied computer related products immensely, and are confident that we can get the job done. The learning never stops for us though, as we are always looking for ways to improve.” Brand research. Yeah, right.

“Our goal is to help each business and brand reach their ultimate potential,” explains the “Our Members” section of the site. “We have contracts with our members that allows us to have guidelines for them to follow on their path to success. We have put these in place for a reason. This provides the stability and direction that companies/brands need to succeed.” Points for brazenness.

Their site advises that interested parties can “become a member” of the Manipulaters Team just by paying a one-time membership fee of $15, and providing a driver’s license/ID card plus a phone or electricity bill. Ah, there’s nothing quite like phishers phishing phishers.

The scary aspect of this fraud gang is that they appear to play in the Web hosting space as well. Most of their phishing pages are in fact hosted on Internet address space that is assigned to Manipulaters[dot]com: Incredibly, the group is listed as the current occupants of an entire Class C range of Internet addresses, from 167.160.46.0 to 167.160.46.255. Continue reading →

More Evidence of mSpy Apathy Over Breach

May 27, 2015

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Mobile spyware maker mSpy has expended a great deal of energy denying and then later downplaying a breach involving data stolen from tens of thousands of mobile devices running its software. Unfortunately for victims of this breach, mSpy’s lackadaisical response has left millions of screenshots taken from those devices wide open and exposed to the Internet via its own Web site.

The mSpy data was leaked to the Deep Web, where hundreds of gigabytes of files, chat logs, location records and other data was dumped after the company reportedly declined to comply with extortion demands made by hackers who’d broken into mSpy’s servers. Included in that huge archive is a 13 gigabyte (compressed) directory referencing countless screen shots taken from devices running mSpy’s software — including screen shots taken secretly by users who installed the software on a friend or partner’s device.

The log file of the screen shots taken from mSpy-infested devices doesn’t store the actual screenshot, but instead includes incomplete links to the images. Incredibly, nearly two weeks after this breach became public, all of the leaked screen shots remain viewable over the Internet with nothing more than a Web browser if one knows the base URL that precedes the file name. And that base URL is trivial to work out if you have an active mSpy account.

For example, here’s a fairly benign screen shot reference that was included in the leaked files:

“ref”: “dav/a00/003/628/359/2015/02/24/cGWmz4OjqoyImZQh-25493887.jpg.open

Adding the base URL to that URL stem produces a screen shot showing an mSpy-enabled device browsing seberizeni.cz, a Czech news site. Disturbingly, it is trivial to identify the owners of many mSpy-enabled devices merely based on the information available in the bookmarks bar or Web browser windows shown in many of these screen shots.

According to mSpy, however, this is not a big deal. Almost a week after I requested comment from mSpy, a person named Amelie Ross responded with a somewhat nonsensical statement that essentially said the whole incident was dramatically exaggerated and aggravated by the media. Continue reading →

IRS: Crooks Stole Data on 100K Taxpayers Via ‘Get Transcript’ Feature

May 26, 2015

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In March 2015, KrebsOnSecurity broke the news that identity thieves engaged in filing fraudulent tax refund requests with the Internal Revenue Service (IRS) were using the IRS’s own Web site to obtain taxpayer data needed to complete the phony requests. Today, IRS Commissioner John Koskinen acknowledged that crooks used this feature to pull sensitive data on more than 100,000 taxpayers this year.

That March story — Sign Up at IRS.gov Before Crooks Do It For You — tracked the nightmarish story of Michael Kasper, one of millions of Americans victimized by tax refund fraud each year. When Kasper tried to get a transcript of the fraudulent return using the “Get Transcript” function on IRS.gov, he learned that someone had already registered through the IRS’s site using his Social Security number and an unknown email address.

Koskinen was quoted today in an Associated Press story saying the IRS was alerted to the thieves when technicians noticed an increase in the number of taxpayers seeking transcripts. The story noted that the IRS said they targeted the system from February to mid-May, and that the service has been temporarily shut down. Prior to that shutdown, the IRS estimates that thieves used the data to steal up to $50 million in fraudulent refunds.

“In all, about 200,000 attempts were made from questionable email domains, with more than 100,000 of those attempts successfully clearing authentication hurdles,” the IRS said in a statement. “During this filing season, taxpayers successfully and safely downloaded a total of approximately 23 million transcripts.” Continue reading →

Recent Breaches a Boon to Extortionists

May 26, 2015

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The recent breaches involving the leak of personal data on millions of customers at online hookup site Adult Friend Finder and mobile spyware maker mSpy give extortionists and blackmailers plenty of ammunition with which to ply their trade. And there is some evidence that ne’er-do-wells are actively trading this data and planning to abuse it for financial gain.

Within hours after data on tens (if not hundreds) of thousands of mSpy users leaked onto the Deep Web, miscreants on the “Hell” forum (reachable only via Tor) were busy extracting countless Apple iTunes usernames and passwords from the archive.

“Apple Id accounts you can use Tor to login perfectly safe! Good method so far use ‘Find My phone,'” wrote Ping, a moderator on the forum. “Wipe data and set a message that they been hacked and the only way to get their data back is to pay a ransom.”

“Hell” forum users discuss extorting mSpy users who had iTunes account credentials compromised in the breach.

Continue reading →

Carefirst Blue Cross Breach Hits 1.1M

May 21, 2015

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CareFirst BlueCross BlueShield on Wednesday said it had been hit with a data breach that compromised the personal information on approximately 1.1 million customers. There are indications that the same attack methods may have been used in this intrusion as with breaches at Anthem and Premera, incidents that collectively involved data on more than 90 million Americans.

According to a statement CareFirst issued Wednesday, attackers gained access to names, birth dates, email addresses and insurance identification numbers. The company said the database did not include Social Security or credit card numbers, passwords or medical information. Nevertheless, CareFirst is offering credit monitoring and identity theft protection for two years.

Nobody is officially pointing fingers at the parties thought to be responsible for this latest health industry breach, but there are clues implicating the same state-sponsored actors from China thought to be involved in the Anthem and Premera attacks. Continue reading →

mSpy Denies Breach, Even as Customers Confirm It

May 20, 2015

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Last week, KrebsOnSecurity broke the news that sensitive data apparently stolen from hundreds of thousands of customers mobile spyware maker mSpy had been posted online. mSpy has since been quoted twice by other publications denying a breach of its systems. Meanwhile, this blog has since contacted multiple people whose data was published to the deep Web, all of whom confirmed they were active or former mSpy customers.

mSpy told BBC News it had been the victim of a “predatory attack” by blackmailers, but said it had not given in to demands for money. mSpy also told the BBC that claims the hackers had breached its systems and stolen data were false.

“There is no data of 400,000 of our customers on the web,” a spokeswoman for the company told the BBC. “We believe to have become a victim of a predatory attack, aimed to take advantage of our estimated commercial achievements.”

Let’s parse that statement a bit further. No, the stolen records aren’t on the Web; rather, they’ve been posted to various sites on the Deep Web, which is only accessible using Tor. Also, I don’t doubt that mSpy was the target of extortion attempts; the fact that the company did not pay the extortionist is likely what resulted in its customers’ data being posted online.

How am I confident of this, considering mSpy has still not responded to requests for comment? I spent the better part of the day today pulling customer records from the hundreds of gigabytes of data leaked from mSpy. I spoke with multiple customers whose payment and personal data — and that of their kids, employees and significant others — were included in the huge cache. All confirmed they are or were recently paying customers of mSpy.

Joe Natoli, director of a home care provider in Arizona, confirmed what was clear from looking at the leaked data — that he had paid mSpy hundreds of dollars a month for a subscription to monitor all of the mobile devices distributed to employees by his company. Natoli said all employees agree to the monitoring when they are hired, but that he only used mSpy for approximately four months.

“The value proposition for the cost didn’t work out,” Natoli said.

Katherine Till‘s information also was in the leaked data. Till confirmed that she and her husband had paid mSpy to monitor the mobile device of their 14-year-old daughter, and were still a paying customer as of my call to her.

Till added that she was unaware of a breach, and was disturbed that mSpy might try to cover it up.

“This is disturbing, because who knows what someone could do with all that data from her phone,” Till said, noting that she and her husband had both discussed the monitoring software with their daughter. “As parents, it’s hard to keep up and teach kids all the time what they can and can’t do. I’m sure there are lots more people like us that are in this situation now.”

Another user whose financial and personal data was in the cache asked not to be identified, but sheepishly confirmed that he had paid mSpy to secretly monitor the mobile device of a “friend.”

Update, May 22, 10:24 a.m.: mSpy is finally admitting that it did have a breach that exposed customer information, but they are still downplaying the numbers. Continue reading →

Security Firm Redefines APT: African Phishing Threat

May 20, 2015

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A security firm made headlines earlier this month when it boasted it had thwarted plans by organized Russian cyber criminals to launch an attack against multiple US-based banks. But a closer look at the details behind that report suggests the actors in question were relatively unsophisticated Nigerian phishers who’d simply registered a bunch of new fake bank Web sites.

The report was released by Colorado Springs, Colo.-based security vendor root9B, which touts a number of former National Security Agency (NSA) and Department of Defense cybersecurity experts among its ranks. The report attracted coverage by multiple media outlets, including, Fox News, Politico, SC Magazine and The Hill. root9B said it had unearthed plans by a Russian hacking gang known variously as the Sofacy Group and APT28. APT is short for “advanced persistent threat,” and it’s a term much used among companies that sell cybersecurity services in response to breaches from state-funded adversaries in China and Russia that are bent on stealing trade secrets via extremely stealthy attacks.

The cover art for the root9B report.

“While performing surveillance for a root9B client, the company discovered malware generally associated with nation state attacks,” root9B CEO Eric Hipkins wrote of the scheme, which he said was targeted financial institutions such as Bank of America, Regions Bank and TD Bank, among others.

“It is the first instance of a Sofacy or other attack being discovered, identified and reported before an attack occurred,” Hipkins said. “Our team did an amazing job of uncovering what could have been a significant event for the international banking community. We’ve spent the past three days informing the proper authorities in Washington and the UAE, as well as the CISOs at the financial organizations.”

However, according to an analysis of the domains reportedly used by the criminals in the planned attack, perhaps root9B should clarify what it means by APT. Unless the company is holding back key details about their research, their definition of APT can more accurately be described as “African Phishing Threat.”

The report correctly identifies several key email addresses and physical addresses that the fraudsters used in common across all of the fake bank domains. But root9B appears to have scant evidence connecting the individual(s) who registered those domains to the Sofacy APT gang. Indeed, a reading of their analysis suggests their sole connection is that some of the fake bank domains used a domain name server previously associated with Sofacy activity: carbon2u[dot]com (warning: malicious host that will likely set off antivirus alerts).

The problem with that linkage is although carbon2u[dot]com was in fact at one time associated with activity emanating from the Sofacy APT group, Sofacy is hardly the only bad actor using that dodgy name server. There is plenty of other badness unrelated to Sofacy that calls Carbon2u home for their DNS operations, including these clowns.

From what I can tell, the vast majority of the report documents activity stemming from Nigerian scammers who have been conducting run-of-the-mill bank phishing scams for almost a decade now and have left quite a trail.

For example, most of the wordage in this report from root9B discusses fake domains registered to a handful of email addresses, including “adeweb2001@yahoo.com,” adeweb2007@yahoo.com,” and “rolexzad@yahoo.com”.

Each of these emails have long been associated with phishing sites erected by apparent Nigerian scammers. They are tied to this Facebook profile for a Showunmi Oluwaseun, who lists his job as CEO of a rather fishy-sounding organization called Rolexzad Fishery Nig. Ltd.

Continue reading →

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