[ISN] Hacker costs CryptoLogic US$1.3M charge

[R. A. Hettinga]

--- begin forwarded text


Status:  U
Date: Thu, 7 Feb 2002 01:02:16 -0600 (CST)
From: InfoSec News <isn at c4i.org>
To: isn at attrition.org
Subject: [ISN] Hacker costs CryptoLogic US$1.3M charge
Sender: owner-isn at attrition.org
Reply-To: InfoSec News <isn at c4i.org>

http://www.canada.com/news/story.asp?id={9BAF2BB1-87C1-4725-AF77-9881D5B89E1D}

[This has to be one of the first times I have seen a corporation
listing a hacker attack as a loss on their financial statement.
$1.3 million is no chump change today, all the managers on this list
looking for additional $$$ in their infosec budget should be pointing
this article out when the powers that be think that something like
this will never happen to their company, and that the V.P's really
should have new Herman Miller chairs instead.  - WK]


Paul Vieira
National Post
Tuesday, February 05, 2002

CryptoLogic Inc., a gambling software maker, saw its fourth-quarter
profit drop 10%, largely because it took a charge related to a hacker
attack last August that saw 140 online gamblers pocket winnings of
about US$1.9-million.

The company, in a conference call with analysts yesterday, said it
hopes to recover a good chunk of the illicit gains through an
insurance claim. Nevertheless, it is taking a US$1.3-million charge.
"A prudent approach was necessary," said Jean Nolting, CryptoLogic's
chief executive.

In the span of a couple of hours, a computer hacker broke into
CryptoLogic's Web servers and reprogrammed slot machines and a craps
table at two Web-based casinos that use the company's software.

Slot machine and craps players at the casinos won each time they
played.

The charge pulled down profit for the three-month period ended Dec. 31
to US$3.7-million, or US28¢ a share, from US$4.1-million (US29¢).
Meanwhile, revenue for the quarter increased 15%, to US$11.2-million
from $9.7-million.

Despite the fourth-quarter charge, the company posted higher profit in
2001. For the full fiscal year, CryptoLogic earned US$18.1-million
(US$1.33) on revenue of US$43.5-million, compared with $15.5-million
(US$1.18) on sales of US$34.4-million.

Excluding the writeoff, profit would have been US$4.2-million for the
fourth quarter and US$18.6-million for the year, the company said.

Also, the Toronto firm said it posted profit margin of 45% and has
US$60-million in cash as of the end of 2001.

During its call with analysts, Mr. Nolting said 2002 had the makings
of a "profitable year, with solidly upside potential," especially in
the second half.

For this fiscal year, the company forecasts revenue of US$45-million
to US$50-million and profit between US$17-million and US$20-million.

It expects to hit the "bottom" of the growth curve in the first
quarter.

However, CryptoLogic said U.S. banks' refusal to accept credit card
charges from online gambling sites could hinder growth prospects in
North America. Credit card rejections in the United States jumped 25%
in December as anti-terrorism efforts and the uncertain legality of
online gambling in North America cast a chill over U.S. banks.

Therefore, the company said, it will be examining offshore markets.
"Europe and Asia -- those will be our key areas," Mr. Nolting said.

By the end of the year, it wants half of its revenue to come from
Europe and Asia, the rest from North America. About 65% of its sales
now come from North America.

A key part of its foreign focus will be an online casino to be
operated by Littlewoods, a British-based gambling operator. However,
the launch of Littlewoods.com has been delayed as regulators in the
Isle of Man, where the online casino will be incorporated, want more
information about the software.

But Mr. Nolting said he expected Littlewoods to be in operation by the
end of the first quarter, and to generate up to 10% of total revenue.

Growth in 2002 will also be aided by the release of online versions of
bingo and poker that the company has been developing.



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-- 
-----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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