Microsoft Finds Malware on New Computers in China

A customer in Shenzhen, China, took a new laptop out of its box and booted it up for the first time. But as the screen lit up, the computer began taking on a life of its own. The machine, triggered by a virus hidden in its hard drive, began searching across the Internet for another computer.

The laptop, supposedly in pristine, super-fast, direct-from-the-factory condition, had instantly become part of an illegal, global network capable of attacking websites, looting bank accounts and stealing personal data.

For years, online investigators have warned consumers about the dangers of opening or downloading emailed files from unknown or suspicious sources. Now, they say malicious software and computer code could be lurking on computers before the bubble wrap even comes off.

The shopper in this case was part of a team of Microsoft researchers in China investigating the sale of counterfeit software. They received a sudden introduction to malware called Nitol. The incident was revealed in court documents unsealed Thursday in a federal court in Virginia. The records describe a new front in a legal campaign against cybercrime being waged by the maker of the Windows operating system, which is the biggest target for viruses.

The documents are part of a computer fraud lawsuit filed by Microsoft against a web domain registered to a Chinese businessman named Peng Yong. The company says the domain is a major hub for illicit Internet activity, home base for Nitol and more than 500 other types of malware, which makes it the largest single repository of infected software that Microsoft officials have encountered.

Peng, the owner of an Internet services firm, said he was not aware of the Microsoft suit. He denied the allegations and said his company does not tolerate improper conduct on the domain, 3322.org. Three other unidentified individuals accused by Microsoft of establishing and operating the Nitol network are also named in the suit.

What emerges most vividly from the court records and interviews with Microsoft officials is a disturbing picture of how vulnerable Internet users have become, in part because of weaknesses in computer supply chains. To increase their profit margins, less reputable computer manufacturers and retailers may use counterfeit copies of popular software products to build machines more cheaply. Plugging the holes is nearly impossible, especially in less regulated markets such as China, and that leaves openings for cybercriminals
They're really changing the ways they try to attack you," said Richard Boscovich, a former federal prosecutor and a senior attorney in Microsoft's digital crimes unit.

Distance doesn't equal safety. Nitol, for example, is an aggressive virus found on computers in China, the United States, Russia, Australia and Germany. Microsoft has even identified servers in the Cayman Islands controlling Nitol-infected machines. All these compromised computers become part of a botnet, or collection of compromised computers; it's one of the most invasive and persistent forms of cybercrime.

Nitol appears poised to strike. Infection rates have peaked, according to Patrick Stratton, a senior manager in Microsoft's digital crimes unit who filed a document in the court case explaining Nitol and its connection to the 3322.org domain.

For Microsoft, pursuing cybercriminals is a smart business. Its Windows operating system runs most of the computers connected to the Internet. Victims of malware are likely to believe their problems stem from Windows instead of a virus they are unaware of, and that damages the company's brand and reputation.

But more than Microsoft's image is stake when counterfeit products are tainted by malware that spreads so rapidly, Boscovich said. "It's more than simply a traditional intellectual property issue," Boscovich said. "It's now become a security issue."

The investigation by Microsoft's digital crimes unit began in August 2011 as a study into the sale and distribution of counterfeit versions of Windows. Microsoft employees in China bought 20 new computers from retailers and took them back to a home with an Internet connection.

They found forged versions of Windows on all the machines and malware already installed on four. The one with Nitol, however, was the most alarming because the malware was active.

"As soon as we powered on this particular computer, of its own accord without any instruction from us, it began reaching out across the Internet, attempting to contact a computer unfamiliar to us," Stratton said in the document filed with the court.

The laptop was made by Hedy, a computer manufacturer in Guangzhou, China, according to the court records. The company, reached by phone, declined to answer questions.

Stratton and his colleagues also found Nitol to be highly contagious. They inserted a thumb drive into the computer and the virus immediately copied itself onto it. When the drive was inserted into a separate machine, Nitol quickly copied itself on to it.

Liyan

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Virus from China the gift that keeps on giving

An insidious computer virus recently discovered on digital photo frames has been identified as a powerful new Trojan Horse from China that collects passwords for online games - and its designers might have larger targets in mind.
"It is a nasty worm that has a great deal of intelligence," said Brian Grayek, who heads product development at Computer Associates, a security vendor that analyzed the Trojan Horse.
The virus, which Computer Associates calls Mocmex, recognizes and blocks antivirus protection from more than 100 security vendors, as well as the security and firewall built into Microsoft Windows. It downloads files from remote locations and hides files, which it names randomly, on any PC it infects, making itself very difficult to remove. It spreads by hiding itself on photo frames and any other portable storage device that happens to be plugged into an infected PC.
The authors of the new Trojan Horse are well-funded professionals whose malware has "specific designs to capture something and not leave traces," Grayek said. "This would be a nuclear bomb" of malware.
By studying how the code is constructed and how it's propagated, Computer Associates has traced the Trojan to a specific group in China, Grayek said. He would not name the group.
The strength of the malware shows how skilled hackers have become and how serious they are about targeting digital devices, which provide a new frontier for stealing information from vast numbers of unwary PC owners. More than 2.26 million digital frames were sold in 2007, according to the Consumer Electronics Association, and it expects sales to grow to 3.26 million in 2008.
The new Trojan also has been spotted in Singapore and the Russian Federation and has 67,500 variants, according to Prevx, a security vendor headquartered in England.
Grayek said Mocmex might be a test for some bigger attack, because it's designed to capture any personal, private or financial information, yet so far it's only stealing passwords for online games.
"If I send you a package but it doesn't explode, why did I send it?" he said. "Maybe I want to see if I can get it out to you and how you open it."
The initial reports of infected frames came from people who had bought them over the holidays from Sam's Club and Best Buy. New reports involve frames sold at Target and Costco, according to SANS, a group of security researchers in Bethesda, Md., who began asking for accounts of infected devices on Christmas Day. So far the group has collected more than a dozen complaints from people across the country.
The new Trojan isn't the only piece of malware involved. Deborah Hale of Sans said the researchers also found four other, older Trojans on each frame, which may serve as markers for botnets - networks of infected PCs that are remotely controlled by hackers.
There is W32.Rajump, which deposits the same piece of malware that infected some of Apple's video iPods during manufacturing in October 2006. It gathers Internet Protocol addresses and port numbers from infected PCs and ships them out, according to Symantec. One destination is registered to a service in China that allows people to conceal their own IP addresses.
Then there is a generic Trojan; a Trojan that opens a back door on PCs and displays pop-up ads; and a Trojan that spreads itself through portable devices like Mocmex does.
How all this malware got onto the photo frames and what it's doing there is unclear. Trojans can download other Trojans, which is part of how botnets are controlled.
While SANS is investigating the infections, the retailers are saying little.
Sam's Club said it has found no infected frames, and its distributor, Advanced Design Systems, did not return calls seeking comment.
A few Target customers complained about frames distributed by Uniek, a store spokesman confirmed. Target is no longer selling those frames, but that's because the frames didn't sell well over the holidays, he said. Target has found no infections, he said, but is watching for them.
Best Buy said one line of its Insignia frames - also now discontinued - was infected during manufacturing but would not provide details.
Costco did not return calls seeking comment.
How to avoid problems
Protecting against these new computer viruses, which so far are aimed at PCs running Windows, is hard - and sometimes impossible.
Updated antivirus software works unless the malware writers get ahead of the antivirus vendors, which is what happened with the new Trojan. Computer Associates, for example, just began protecting against it last week.
While some advise disabling Autorun in Windows, which allows devices to run automatically when they're plugged into a USB port, it's not a failsafe. Doing so requires some computer expertise, and this Trojan re-enables Autorun if it's turned off, according to Brian Grayek of Computer Associates. "If you plug in (the frame), you're already infected," he said.
Deborah Hale at SANS suggested that PC users find friends with Macintosh or Linux machines and have them check for malware before plugging any device into a PC.
She also recommended backing up data with an online service such as Mozy.com that offers free backup for home users with less than 2 gigabytes of data. But it does not back up the operating system, she warned. If you're attacked and your PC fails, you'll have to reformat and reload all of the programs.

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