Police in Florida have arrested a 25-year-old man accused of being part of a multi-state cyber fraud ring that hijacked mobile phone numbers in online attacks that siphoned hundreds of thousands of dollars worth of bitcoin and other cryptocurrencies from victims.

On July 18, 2018, Pasco County authorities arrested Ricky Joseph Handschumacher, an employee of the city of Port Richey, Fla, charging him with grand theft and money laundering. Investigators allege Handschumacher was part of a group of at least nine individuals scattered across multiple states who for the past two years have drained bank accounts via an increasingly common scheme involving mobile phone “SIM swaps.”

A SIM card is the tiny, removable chip in a mobile device that allows it to connect to the provider’s network. Customers can legitimately request a SIM swap when their existing SIM card has been damaged, or when they are switching to a different phone that requires a SIM card of another size.

But SIM swaps are frequently abused by scam artists who trick mobile providers into tying a target’s service to a new SIM card and mobile phone that the attackers control. Unauthorized SIM swaps often are perpetrated by fraudsters who have already stolen or phished a target’s password, as many banks and online services rely on text messages to send users a one-time code that needs to be entered in addition to a password for online authentication.

In some cases, fraudulent SIM swaps succeed thanks to lax authentication procedures at mobile phone stores. In other instances, mobile store employees work directly with cyber criminals to help conduct unauthorized SIM swaps, as appears to be the case with the crime gang that allegedly included Handschumacher.

A WORRIED MOM

According to court documents, investigators first learned of the group’s activities in February 2018, when a Michigan woman called police after she overheard her son talking on the phone and pretending to be an AT&T employee. Officers responding to the report searched the residence and found multiple cell phones and SIM cards, as well as files on the kid’s computer that included “an extensive list of names and phone numbers of people from around the world.”

The following month, Michigan authorities found the same individual accessing personal consumer data via public Wi-Fi at a local library, and seized 45 SIM cards, a laptop and a Trezor wallet — a hardware device designed to store crytpocurrency account data. In April 2018, the mom again called the cops on her son — identified only as confidential source #1 (“CS1”) in the criminal complaint — saying he’d obtained yet another mobile phone.

Once again, law enforcement officers were invited to search the kid’s residence, and this time found two bags of SIM cards and numerous driver’s licenses and passports. Investigators said they used those phony documents to locate and contact several victims; two of the victims each reported losing approximately $150,000 in cryptocurrencies after their phones were cloned; the third told investigators her account was drained of $50,000.

CS1 later told investigators he routinely conducted the phone cloning and cashouts in conjunction with eight other individuals, including Handschumacher, who allegedly used the handle “coinmission” in the group’s daily chats via Discord and Telegram. Search warrants revealed that in mid-May 2018 the group worked in tandem to steal 57 bitcoins from one victim — then valued at almost $470,000 — and agreed to divide the spoils among members.

GRAND PLANS

Investigators soon obtained search warrants to monitor the group’s Discord server chat conversations, and observed Handschumacher allegedly bragging in these chats about using the proceeds of his alleged crimes to purchase land, a house, a vehicle and a “quad vehicle.” Interestingly, Handschumacher’s public Facebook page remains public, and is replete with pictures that he posted of recent new vehicle aquisitions, including a pickup truck and multiple all-terrain vehicles and jet skis.

The Pasco County Sherrif’s office says their surveillance of the Discord server revealed that the group routinely paid employees at cellular phone companies to assist in their attacks, and that they even discussed a plan to hack accounts belonging to the CEO of cryptocurrency exchange Gemini Trust Company. The complaint doesn’t mention the CEO by name, but the current CEO is bitcoin billionaire Tyler Winklevoss, who co-founded the exchange along with his twin brother Cameron.

“Handschumacher and another co-conspirator talk about compromising the CEO of Gemini and posted his name, date of birth, Skype username and email address into the conversation,” the complaint reads. “Handschumacher and the co-conspirators discuss compromising the CEO’s Skype account and T-Mobile account. The co-conspirator states he will call his ‘guy’ at T-Mobile to ask about the CEO’s account.”

Court documents state that the group used Coinbase.com and multiple other cryptocurrency exchanges to launder the proceeds of their thefts in a bid to obfuscate the source of the stolen funds. Subpoenas to Coinbase revealed Handschumacher had a total of 82 bitcoins sold from or sent to his account, and that virtually all of the funds were received via outside sources (as opposed to being purchased through Coinbase).

Neither Handschumacher nor his attorney responded to requests for comment. The complaint against Handschumacher says that following his arrest he confessed to his involvement in the group, and that he admitted to using his cell phone to launder cryptocurrency in amounts greater than $100,000.

But on July 23, Handschumacher’s attorney entered a plea of “not guilty” on behalf of his client, who is now facing charges of grand larceny, money laundering, and accessing a computer or electronic device without authorization.

Handschumacher’s arrest comes on the heels of an apparent law enforcement crackdown on individuals involved in SIM swap schemes. As first reported by Motherboard.com earlier this month, on July 12, police in California arrested Joel Ortiz — a 20-year-old college student accused of being part of a group of criminals who hacked dozens of cellphone numbers to steal more than $5 million in cryptocurrency.

The Motherboard story notes that Ortiz allegedly was an active member of OGusers[dot]com, a marketplace for Twitter and Instagram usernames that SIM swapping hackers use to sell stolen accounts — usually one- to six-letter usernames. Short usernames are something of a prestige or status symbol for many youngsters, and some are willing to pay surprising sums of money for them.

Sources familiar with the investigation tell KrebsOnSecurity that Handschumacher also was a member of OGUsers, although it remains unclear how active he may have been there.

WHAT YOU CAN DO

All four major U.S. mobile phone companies allow customers to set personal identification numbers (PINs) on their accounts to help combat SIM swaps, as well as another type of phone hijacking known as a number port-out scam. But these precautions may serve as little protection against crooked insiders working at mobile phone retail locations. On May 18, KrebsOnSecurity published a story about a Boston man who had his three-letter Instagram username hijacked after attackers executed a SIM swap against his T-Mobile account. According to T-Mobile, that attack was carried out with the help of a rogue company employee.

SIM swap scams illustrate a crucial weak point of multi-factor authentication methods that rely on a one-time code sent either via text message or an automated phone call. If an online account that you value offers more robust forms of multi-factor authentication — such as one-time codes generated by an app, or better yet hardware-based security keys — please consider taking full advantage of those options.

If, however, SMS-based authentication is the only option available, this is still far better than simply relying on a username and password to protect the account. If you haven’t done so lately, head on over to twofactorauth.org, which maintains probably the most comprehensive list of which sites support multi-factor authentication, indexing each by type of site (email, gaming, finance, etc) and the type of added authentication offered (SMS, phone call, software/hardware token, etc.).

TCM Bank, a company that helps more than 750 small and community U.S. banks issue credit cards to their account holders, said a Web site misconfiguration exposed the names, addresses, dates of birth and Social Security numbers of thousands of people who applied for cards between early March 2017 and mid-July 2018.

TCM is a subsidiary of Washington, D.C.-based ICBA Bancard Inc., which helps community banks provide a credit card option to their customers using bank-branded cards.

In a letter being mailed to affected customers today, TCM said the information exposed was data that card applicants uploaded to a Web site managed by a third party vendor. TCM said it learned of the issue on July 16, 2018, and had the problem fixed by the following day.

Bruce Radke, an attorney working with ICBA on its breach outreach efforts to customers, said fewer than 10,000 consumers who applied for cards were affected. Radke declined to name the third-party vendor, saying TCM was contractually prohibited from doing so.

“It was less than 25 percent of the applications we processed during the relevant time period that were potentially affected, and less than one percent of our cardholder base was affected here,” Radke said. “We’ve since confirmed the issue has been corrected, and we’re requiring the vendor to look at their technologies and procedures to detect and prevent similar issues going forward.”

ICBA Bancard is the payments subsidiary of the Independent Community Bankers of America, a organization representing more than 5,700 financial institutions that has been fairly vocal about holding retailers accountable for credit card breaches over the years. Last year, the ICBA sued Equifax over the big-three credit bureau’s massive data breach that exposed the Social Security numbers and other sensitive data on nearly 150 million Americans.

Many companies that experience a data breach or data leak are quick to place blame for the incident on a third-party that mishandled sensitive information. Sometimes this blame is entirely warranted, but more often such claims ring hollow in the ears of those affected — particularly when they come from banks and security providers. For example, identity theft protection provider LifeLock recently addressed a Web site misconfiguration that exposed the email addresses of millions of customers. LifeLock’s owner Symantec later said it fixed the flaw, which it blamed on a mistake by an unnamed third-party marketing partner.

Managing third-party risk can be challenging, especially for organizations with hundreds or thousands of partners (consider the Target breach, which began with an opportunistic malware compromise at a heating and air conditioning vendor). Nevertheless, organizations of all shapes and sizes need to be vigilant about making sure their partners are doing their part on security, lest third-party risk devolves into a first-party breach of customer trust.

A story published here on July 12 about a new sextortion-based phishing scheme that invokes a real password used by each recipient has become the most-read piece on KrebsOnSecurity since this site launched in 2009. And with good reason — sex sells (the second most-read piece here was my 2015 scoop about the Ashley Madison hack).

But beneath the lurid allure of both stories lies a more unsettling reality: It has never been easier for scam artists to launch convincing, targeted phishing and extortion scams that are automated on a global scale. And given the sheer volume of hacked and stolen personal data now available online, it seems almost certain we will soon witness many variations on these phishing campaigns that leverage customized data elements to enhance their effectiveness.

The sextortion scheme that emerged this month falsely claims to have been sent from a hacker who’s compromised your computer and used your webcam to record a video of you while you were watching porn. The missive threatens to release the video to all your contacts unless you pay a Bitcoin ransom.

What spooked people most about this scam was that its salutation included a password that each recipient legitimately used at some point online. Like most phishing attacks, the sextortion scheme that went viral this month requires just a handful of recipients to fall victim for the entire scheme to be profitable.

From reviewing the Bitcoin addresses readers shared in the comments on that July 12 sextortion story, it is clear this scam tricked dozens of people into paying anywhere from a few hundred to thousands of dollars in Bitcoin. All told, those addresses received close to $100,000 in payments over the past two weeks.

And that is just from examining the Bitcoin addresses posted here; the total financial haul from different versions of this attack is likely far higher. A more comprehensive review by the Twitter user @SecGuru_OTX and posted to Pastebin suggests that as of July 26 there were more than 300 Bitcoin addresses used to con at least 150 victims out of a total of 30 Bitcoins, or approximately $250,000.

There are several interesting takeaways from this phishing campaign. The first is that it effectively inverted a familiar threat model: Most phishing campaigns try to steal your password, whereas this one leads with it.

A key component of a targeted phishing attack is personalization. And purloined passwords are an evergreen lure because your average Internet user hasn’t the slightest inkling of just how many of their passwords have been breached, leaked, lost or stolen over the years.

This was evidenced by the number of commenters here who acknowledged that the password included in the extortion email was one they were still using, with some even admitting they were using the password at multiple sites! 

Surprisingly, none of the sextortion emails appeared to include a Web site link of any kind. But consider how effective this “I’ve got your password” scam would be at enticing a fair number of recipients into clicking on one.

In such a scenario, the attacker might configure the link to lead to an “exploit kit,” crimeware designed to be stitched into hacked or malicious sites that exploits a variety of Web-browser vulnerabilities for the purposes of installing malware of the attacker’s choosing.

Also, most of the passwords referenced in the sextortion campaign appear to have been slurped from data breaches that are now several years old. For example, many readers reported that the password they received was the one compromised in LinkedIn’s massive 2012 data breach.

Now imagine how much more convincing such a campaign would be if it leveraged a fresh password breach — perhaps one that the breached company wasn’t even aware of yet.

There are many other data elements that could be embedded in extortion emails to make them more believable, particularly with regard to freshly-hacked databases. For example, it is common for user password databases that are stolen from hacked companies to include the Internet Protocol (IP) addresses used by each user upon registering their account.

This could be useful for phishers because there are many automated “geo-IP” services that try to determine the geographical location of Website visitors based on their Internet addresses.

Some of these services allow users to upload large lists of IP addresses and generate links that plot each address on Google Maps. Suddenly, the phishing email not only includes a password you are currently using, but it also bundles a Google Street View map of your neighborhood!

There are countless other ways these schemes could become far more personalized and terrifying — all in an automated fashion. The point is that automated, semi-targeted phishing campaigns are likely here to stay.

Here are some tips to help avoid falling prey to these increasingly sophisticated phishing schemes:

–Avoid clicking on links and attachments in email, even in messages that appear to be sent from someone you know.

–Urgency should be a giant red flag. Most phishing scams invoke a temporal element that warns of dire consequences should you fail to respond or act quickly. Take a deep breath. If you’re unsure whether the message is legitimate, visit the site or service in question manually (ideally, using a browser bookmark so as to avoid potential typosquatting sites).

–Don’t re-use passwords. If you’re the kind of person who likes to use the same password across multiple sites, then you definitely need to be using a password manager. That’s because password managers handle the tedious task of creating and remembering unique, complex passwords on your behalf; all you need to do is remember a single, strong master password or passphrase. In essence, you effectively get to use the same password across all Web sites.

Some of the more popular password managers include Dashlane, Keepass, LastPass. [Side note: Using unique passwords at each site also can provide a strong clue about which Web site likely got breached in the event that said password shows up in one of these targeted phishing attacks going forward].

-Do not respond to spam or phishing emails. Several readers reported sending virtual nastygrams back to their would-be sextortionists. Please resist any temptation to reply. In all likelihood, the only thing a reply will accomplish is letting the attackers know they have a live one on the hook, and ensuring that your email address will receive even more scams and spams in the future.

-Don’t pay off extortionists. For the same reason that replying to spammers is a bad idea, rewarding extortionists only serves to further the victimization of yourself and others. Also, even if someone really does have the goods on you, there is no way that you as the victim can be sure that paying makes the threat go away.

Reddit.com today disclosed that a data breach exposed some internal data, as well as email addresses and passwords for some Reddit users. As Web site breaches go, this one doesn’t seem too severe. What’s interesting about the incident is that it showcases once again why relying on mobile text messages (SMS) for two-factor authentication (2FA) can lull companies and end users into a false sense of security.

In a post to Reddit, the social news aggregation platform said it learned on June 19 that between June 14 and 18 an attacker compromised a several employee accounts at its cloud and source code hosting providers.

Reddit said the exposed data included internal source code as well as email addresses and obfuscated passwords for all Reddit users who registered accounts on the site prior to May 2007. The incident also exposed the email addresses of some users who had signed up to receive daily email digests of specific discussion threads.

Of particular note is that although the Reddit employee accounts tied to the breach were protected by SMS-based two-factor authentication, the intruder(s) managed to intercept that second factor.

“Already having our primary access points for code and infrastructure behind strong authentication requiring two factor authentication (2FA), we learned that SMS-based authentication is not nearly as secure as we would hope, and the main attack was via SMS intercept,” Reddit disclosed. “We point this out to encourage everyone here to move to token-based 2FA.”

Reddit didn’t specify how the SMS code was stolen, although it did say the intruders did not hack Reddit employees’ phones directly. Nevertheless, there are a variety of well established ways that attackers can intercept one-time codes sent via text message.

In one common scenario, known as a SIM-swap, the attacker masquerading as the target tricks the target’s mobile provider into tying the customer’s service to a new SIM card that the bad guys control. A SIM card is the tiny, removable chip in a mobile device that allows it to connect to the provider’s network. Customers can request a SIM swap when their existing SIM card has been damaged, or when they are switching to a different phone that requires a SIM card of another size.

Another typical scheme involves mobile number port-out scams, wherein the attacker impersonates a customer and requests that the customer’s mobile number be transferred to another mobile network provider. In both port-out and SIM swap schemes, the victim’s phone service gets shut off and any one-time codes delivered by SMS (or automated phone call) get sent to a device that the attackers control.

APP-BASED AUTHENTICATION

A more secure alternative to SMS involves the use of a mobile app — such as Google Authenticator or Authy — to generate the one-time code that needs to be entered in addition to a password. This method is also sometimes referred to as a “time-based one-time password,” or TOTP. It’s more secure than SMS simply because the attacker in that case would need to steal your mobile device or somehow infect it with malware in order to gain access to that one-time code. More importantly, app-based two-factor removes your mobile provider from the login process entirely.

Fundamentally, two-factor authentication involves combining something you know (the password) with either something you have (a device) or something you are (a biometric component, for example). The core idea behind 2FA is that even if thieves manage to phish or steal your password, they still cannot log in to your account unless they also hack or possess that second factor.

Technically, 2FA via mobile apps and other TOTP-based methods are more accurately described as “two-step authentication” because the second factor is supplied via the same method as the first factor. For example, even though the second factor may be generated by a mobile-based app, that one-time code needs to be entered into the same login page on a Web site along with user’s password — meaning both the password and the one-time code can still be subverted by phishing, man-in-the-middle and credential replay attacks.

SECURITY KEYS

Probably the most secure form of 2FA available involves the use of hardware-based security keys. These inexpensive USB-based devices allow users to complete the login process simply by inserting the device and pressing a button. After a key is enrolled for 2FA at a particular site that supports keys, the user no longer needs to enter their password (unless they try to log in from a new device). The key works without the need for any special software drivers, and the user never has access to the code — so they can’t give it or otherwise leak it to an attacker.

The one limiting factor with security keys is that relatively few Web sites currently allow users to use them. Some of the most popular sites that do accept security keys include Dropbox, Facebook and Github, as well as Google’s various services.

Last week, KrebsOnSecurity reported that Google now requires all of its 85,000+ employees to use security keys for 2FA, and that it has had no confirmed reports of employee account takeovers since the company began requiring them at the beginning of 2017.

The most popular maker of security keys — Yubico — sells the basic model for $20, with more expensive versions that are made to work with mobile devices. The keys are available directly from Yubico, or via Amazon.com. Yubico also includes a running list of sites that currently support keys for authentication.

If you’re interested in migrating to security keys for authentication, it’s a good idea to purchase at least two of these devices. Virtually all sites that I have seen which allow authentication via security keys allow users to enroll multiple keys for authentication, in case one of the keys is lost or misplaced.

I would encourage all readers to pay a visit to twofactorauth.org, and to take full advantage of the most secure 2FA option available for any site you frequent. Unfortunately many sites do not support any kind of 2-factor authentication — let alone methods that go beyond SMS or a one-time code that gets read to you via an automated phone call. In addition, some sites that do support more robust, app- or key-based two-factor authentication still allow customers to receive SMS-based codes as a fallback method.

If the only 2FA options offered by a site you frequent are SMS and/or phone calls, this is still better than simply relying on a password. But it’s high time that popular Web sites of all stripes start giving their users more robust authentication options like TOTP and security keys. Many companies can be nudged in that direction if enough users start demanding it, so consider using any presence and influence you may have on social media platforms to make your voice heard on this important issue.

Here’s a timely reminder that email isn’t the only vector for phishing attacks: Several U.S. state and local government agencies have reported receiving strange letters via snail mail that include malware-laden compact discs (CDs) apparently sent from China, KrebsOnSecurity has learned.

This particular ruse, while crude and simplistic, preys on the curiosity of recipients who may be enticed into popping the CD into a computer. According to a non-public alert shared with state and local government agencies by the Multi-State Information Sharing and Analysis Center (MS-ISAC), the scam arrives in a Chinese postmarked envelope and includes a “confusingly worded typed letter with occasional Chinese characters.”

The MS-ISAC said preliminary analysis of the CDs indicate they contain Mandarin language Microsoft Word (.doc) files, some of which include malicious Visual Basic scripts. So far, State Archives, State Historical Societies, and a State Department of Cultural Affairs have all received letters addressed specifically to them, the MS-ISAC says. It’s not clear if anyone at these agencies was tricked into actually inserting the CD into a government computer.

I’m sure many readers could think of clever ways that this apparent mail-based phishing campaign could be made more effective or believable, such as including tiny USB drives instead of CDs, or at least a more personalized letter that doesn’t look like it was crafted by someone without a mastery of the English language.

Nevertheless, attacks like this are a reminder that cybercrime can take many forms. The first of Krebs’s 3 Basic Rules for Online Safety — “If you didn’t go looking for it don’t install it” — applies just as well here: If you didn’t go looking for it, don’t insert it or open it.