(In story published Jan. 25 corrects quote in paragraph 14 from
Gartner analyst Avivah Litan to indicate that she said this
"would be" devastating only if investigation shows that company
By Jim Finkle
BOSTON Jan 25 Michaels Companies Inc, the
biggest U.S. arts and crafts retailer, said it is investigating
a possible security breach on its payment card network and
advised customers to check their financial statements for
If confirmed, it would mark the second known data breach
since 2011 at Michaels, which is preparing to sell shares in an
initial public offering.
"We are concerned there may have been a data security attack
on Michaels that may have affected our customers' payment card
information," Michaels Chief Executive Chuck Rubin said in a
statement on Saturday. "We are taking aggressive action to
determine the nature and scope of the issue."
The warning comes in the wake of a massive data breach at
Target Corp over the holiday shopping season, and
suggests that hackers may be attacking U.S. retailers in a spree
the extent of which is yet to be fully understood.
Target last month said hackers had stolen some 40 million
payment card records and accessed 70 million customers' records.
Luxury retailer Neiman Marcus has also disclosed a data breach
that compromised data from about 1.1 million cards.
The U.S. Federal Bureau of Investigation last week warned
retailers to expect more attacks and said the agency has
reviewed 20 incidents over the past year that were similar to
the recent breaches.
Michaels said federal investigators and an outside forensics
firm were investigating to determine if there had been a breach.
The company said it decided to warn the public and launch a
probe into the matter after hearing that there had been an
increase in fraud involving cards of customers who had shopped
at its stores.
It was not immediately clear how many cards might have been
affected, when an attack might have occurred, or whether the
systems were currently compromised. A Michaels representative
declined to elaborate on the statement.
U.S. Secret Service spokesman Edwin Donovan told Reuters his
agency was investigating the matter.
PLANNING TO GO PUBLIC
Michaels, whose major investors are Blackstone Group LP
and Bain Capital LP, last year filed documents with the
U.S. Securities Exchange Commission to go public. The company
resubmitted its IPO documents late last month following a
In a high-profile 2011 attack, hackers replaced some 84 PIN
pads on payment-card terminals at a small number of Michaels
stores, resulting in the theft of about 94,000 payment card
numbers, according to Department of Justice attorneys who
eventually prosecuted two men charged in that case. (reut.rs/1fekNaX)
Last year the Irving, Texas-based retailer settled a
class-action consumer lawsuit related to the matter, without
admitting to any wrongdoing.
Michaels disclosed the 2011 attack in an S-1 registration
statement that it filed with the Securities and Exchange in
March of last year.
"This would be devastating for them because this is the
second time in a row," said Gartner security analyst Avivah
Litan. "The public and the credit card companies are going to
slap their wrist twice as hard because they'll say they haven't
learned their lesson and that they can't be trusted."
But that criticism might be tempered somewhat, given that
other retailers have been breached, Litan said.
The FBI has warned retailers about cyber criminals using
"memory-parsing" software, also known as "RAM scrapers." When a
customer swipes a payment card at checkout, the computer grabs
data from the magnetic strip and transfers it to the retailer's
payment processing provider. While the data is encrypted during
the process, RAM scrapers extract the information from the
computer's live memory, where it briefly appears in plain text.
RAM scraping technology has been around for a long time, but
its use has increased in recent years and cyber criminals have
added features to make it more difficult for victims to detect
the malicious software on their networks.
"They have gotten much more sophisticated," said Daniel
Clemens, chief executive of the cyber security firm Packet
Ninjas, whose firm investigates credit card breaches at
retailers. "We are in a cycle where the incidence of these
attacks will just continue to grow."
(Reporting by Jim Finkle. Additional reporting by Mark
Hosenball; Editing by James Dalgleish, Gunna Dickson and Tiffany