Online payment service PayPal hit by scam

During the past two weeks, online payment service PayPal Inc. has been targeted by scam artists trying to get the personal information of its users, including credit card data, user names and passwords.

On Sept. 16, an unsophisticated scam e-mail, slugged "PayPal Verification," was sent requesting users to log into their PayPal accounts "asap" to confirm they were still active users of the service.

The e-mail said:

"We are now requesting the password to the e-mail address you signed up to PayPal with. This is so our systems can confirm the confirmation e-mails off PayPal stay in your account because there has been a rise in the amount of fraudsters getting access to users e-mail addresses and deleting the Paypal confirmations. This is to protect you and ourselves. PayPal will use this information for fraud protection only."

The e-mail went on to say PayPal would use the information for fraud protection only and was part of the Mountain View, Calif.-based company's new annual process to screen out inactive accounts.

Recipients were then given a link that seemed to go to PayPal's secure site, but was actually a fake.

Then on Sept. 25, another, more sophisticated e-mail, slugged "URGENT: PayPal System Problems" arrived in some users' in-boxes.

That message, which arrived as an HTML e-mail set up to resemble PayPal's Web site, said:

"Today we had some trouble with one of our computer systems. While the trouble appears to be minor, we are not taking any chances. We decided to take the troubled system offline and replace it with a new system. Unfortunately this caused us to lose some member data. Please follow the link below and log into your account to make sure your information is not affected. Account balances have not been affected."

The hackers even offered unsuspecting users their next two transfers at no charge.

The URL listed in the e-mail took users to an official-looking site that asked for their personal data, including user name, password and credit card information.

PayPal spokeswoman Julie Anderson said the company hasn't had a problem with its site and said spoof sites are very commonplace. She said the scam artists probably got hold of a database and sent messages to thousands of people hoping to hit some PayPal account holders.

"[These scams] happen often, and they happen often to successful Web sites like eBay, PayPal and other financial services sites," Anderson said. "Fortunately, we know from experience that PayPal users are for the most part savvy enough not to fall for them. But in the end, if they do, they are certainly not liable for any losses."

A "whois" search on the URL used in the scam shows that it was registered on Sept. 10 by Confinity Inc., in Palo Alto, Calif. However, Confinity, which originally developed the technology used by PayPal, no longer exists, and the telephone number listed has been disconnected.

As soon as PayPal learned of the scam, Anderson said, it contacted the Internet service provider and asked it to take down the spoof sites. That has been done.

Anderson said PayPal also notified the appropriate law enforcement agencies, including the FBI. However, she said, PayPal didn't move to notify its 18 million users of the problem.

Russ Cooper, a security consultant at TruSecure Corp. in Herndon, Va., said PayPal should take steps to alert its users to the scam. He said he was appalled that the company relied on users to determine that the e-mails they got were bogus.

Charles Kolodgy, an analyst at IDC in Framingham, Mass., agreed, saying most people respond to e-mails without thinking about their veracity. He said vendors handling sensitive data should consider using technology that would allow users to determine whether an e-mail has been sent by that vendor and not a scammer.

Such technology, he said, could include a signature key that would be confirmed by a trusted site, special cookie files or a unique password that could be accessed only by the user and the vendor.

Although PayPal has a security center on its site -- complete with tips for users, including a warning that they never share their PayPal password with anyone -- the company should think about putting that information, as well as a message about this scam, in a more visible position on its home page, Kolodgy said.

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