Tricking Giftcards Into Acting As Credit Cards Costs Wal-Mart $225,000—Almost

A gang of Wal-Mart thieves has come up with a novel way to use stolen payment-card data: Skim the mag-stripe data from credit cards in California, copy the stolen tracks onto Citibank giftcards in New York and use the giftcards to buy hundreds of thousands of dollars in merchandise—but only at checkouts staffed by members of the gang, so the fraud won't be immediately spotted. (Giftcards just happen to be the most easily available blanks. Once the mag-stripe tracks from a credit card are on the giftcard, it is magnetically identical to a regular credit card—it just doesn't look like one.)

That approach is how six members of a Long Island theft ring—which included four Wal-Mart cashiers—allegedly walked off with $225,000 in merchandise. Well, almost walked off: The six were arrested on August 9 at the Wal-Mart in Uniondale, N.Y., and charged with grand larceny and possession of "forged instruments."

According to Nassau County police, they were alerted by Wal-Mart security about four cashiers who had been involved in what were apparently card-present transactions. But the actual accounts belonged to cardholders in California, whose mag-stripe data had apparently been stolen using skimmers, and then re-encoded on the giftcards.

"When these four employees were working, two men would come in and start to buy merchandise and additional giftcards that they could use to re-encode," said Detective Lt. Kevin Smith of the Nassau County police department public information office.

The two outside thieves allegedly concentrated on electronics and other high-ticket items, and then paid with the giftcards containing stolen payment-card mag-stripe tracks. "They'll go in with this giftcard, and it's actually maybe somebody's MasterCard or Citibank card, and that account just starts to drop," Smith said. That added up to more than $125,000 lost to Wal-Mart and more than $100,000 to Citibank.

But having the outside thieves do the heavy lifting wouldn't have been possible without the insiders. Ordinarily, giftcards are relatively low-value and low-risk for retailers—the most a thief could steal is what's already on the giftcard. Without a friendly cashier to intentionally avoid noticing that what looked like a giftcard was processing as a credit card, the thefts would never have worked.

At least there was one bright side to the incident: While police were at the Uniondale Wal-Mart arresting the inside members of the gang, the two outside members walked in. They were arrested, too—carrying a total of 15 re-encoded Citibank giftcards.