SHOW: NEWSSTAND: CNN & TIME 20:00 pm ET August 1, 1999; Sunday 8:00 pm Eastern Time Transcript # 99080100V55 Content and programming copyright 1999 Cable News Network Transcribed under license by Federal Document Clearing House, Inc. Formatting copyright 1999 Federal Document Clearing House, Inc. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to Cable News Network. Show: NEWSSTAND: CNN & TIME Date: August 1, 1999 Time: 20:00 Tran: 080100CN.V55 Type: SHOW Head: Digital Desperado; Stolen Generation; All Her Children Sect: News; Domestic Time: 20:00 THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED. ANNOUNCER: CNN & TIME. Tonight: "Digital Desperado." Fast cars, cash: For this man, it was all just a keystroke away. (BEGIN VIDEO CLIP) JUSTIN PETERSEN, HACKER: I tend to march to my own beat as far as morality goes, and what I think is right and wrong. (END VIDEO CLIP) ANNOUNCER: Computers and crime: a hacker's story. GREENFIELD: In a moment, a different kind of crime. ANNOUNCER: Coming up: he rigged contests, even masterminded a heist, and he did it all on-line. (BEGIN VIDEO CLIP) PETERSEN: I was trolling around on the information super highway back when it was a dirt road. (END VIDEO CLIP) ANNOUNCER: An original high-tech gangster, as CNN & TIME continues. (COMMERCIAL BREAK) ANNOUNCER: Next on CNN & TIME: before most of us had even heard of the Internet, he was an on-line bandit. (BEGIN VIDEO CLIP) PETERSEN: I tapped the network connection and watched all of the passwords flying by, the people using the system. (END VIDEO CLIP) ANNOUNCER: Inside the world of a digital desperado, when CNN & TIME continues. (COMMERCIAL BREAK) GREENFIELD: They can steal your credit card number, your Social Security number, your vital banking information without you ever suspecting it. They are, so to speak, the pirates of the information highway, breaking into computer systems, costing us hundreds of millions of dollars in damages every year. How do they do it? Tonight, one of the original criminal hackers offers a rare, inside look at his life of high-tech and high living. Here's Art Harris. (BEGIN VIDEOTAPE) HARRIS (voice-over): Just days out of jail, Justin Petersen is back driving a Porsche. He has a passion for Porsches and was part of a group that used to win them by rigging radio contests. PETERSEN: I tend to march to my own beat as far as morality goes, and what I think is right and wrong. I don't like to answer to anybody. HARRIS: His other passion is chasing the Hollywood life up and down Sunset Strip. PETERSEN: I've had friends that are celebrities. I've run nightclubs, dated beautiful women. It's been a lot of fun. HARRIS: Petersen financed his fun at the touch of a computer keyboard as a high-tech thief. PETERSEN: I just love technology. If you don't have that burning in you to know how things work, then I can't explain it to you. It's like a drug addiction for somebody who's not drug addicted. HARRIS: So Petersen obtained cars fradulently and credit card numbers, even broke into a financial institution, all by computer. PETERSEN: Hacking supported my lifestyle. HARRIS: A lifestyle interrupted by more than three years in prison, one of the longest sentences ever served by a hacker. Federal prosecutor David Schindler. DAVID SCHINDLER, ASSISTANT U.S. ATTORNEY: Justin Petersen was one of the more complicated and unique hackers that I've ever come upon. In part, a very bright guy; clearly had skill sets that a lot of folks don't have -- and also wasn't your typical sort of nerdy kid, hanging out up in the attic. HARRIS: Petersen says his passion to master the toys of technology began as a boy, growing up in Nebraska. PETERSEN: Probably when I was 8 or 9 years old, I started playing with the telephone. At the age of, I believe it was either 11 or 12, I essentially tapped my first telephone. I was at a friend's house, and I took a transistor radio speaker, and I took the two wires and connected across the telephone line. And my friend's mother was speaking on the phone, and of course, I could hear what they were saying. And then by the time I was 13 or 14, I was, you know, climbing telephone poles in my neighborhood and attaching my telephone set to the lines to see which ones did what. HARRIS: In 1980, at the age of 20, Petersen says he got his first computer and dialed in to go online. PETERSEN: I was trolling around on the information superhighway back when it was a dirt road. HARRIS: At the time, most people did not know the Internet even existed. PETERSEN: I didn't leave the house for weeks. (LAUGHTER) And there were a few networks that we could get on and communicate with other people, like myself. HARRIS: When he moved to Los Angeles, Petersen became a party boy by night, a hacker by day. PETERSEN: I had access to a lot of databases for a while there. And we were selling -- I was selling the information to a private investigator. I could go back to the DMV, get your address; go back on the telephone company computer, get your phone number; go to TRW, get your credit report. So with just a name, you could get somebody wired. HARRIS: By the late 1980s, Petersen joined a small gang of hackers that included Ron Austin. RON AUSTIN, HACKER: At the time I was impressed with him because a lot of people seemed to know him. He seemed to be very big in the Hollywood crowd. HARRIS: Austin, Petersen and another infamous hacker -- Kevin Poulsen -- joined forces to crack the telephone system. Poulsen gave Petersen access to phone company manuals. PETERSEN: I lived in the apartment overlooking this parking lot. HARRIS: From the balcony of his old apartment, Petersen could see the rear entrance to this telephone company building, just one of the phone facilities Petersen says he and Poulsen broke into together. PETERSEN: We were, you know, picking the locks and making Pac Bell ID cards. And we've been in literally dozens of central offices. And we'd go in, in the middle of the night when there was nobody in there, and you know, study all the equipment, play with the terminals, try to understand how everything was laid out. HARRIS: Once inside the phone system, they learned how to control telephone company computers through the phone company's own lines. That opened the door to a whole new world. PETERSEN: All your life, as a hacker, you're on the outside trying to figure out what's on the inside. And now, you're on the inside looking at everything. And you can feel and touch it. It was -- it was very exciting. HARRIS: Armed with the power to control phone company computers, they learned how to cheat on radio station call-in contests. SCHINDLER: The radio station contest, frankly, was quite ingenious. Poulsen and Petersen and Austin figured out a way, frankly, to seize control the telephone lines leading to not just any radio station, but frankly anybody. PETERSEN: It's almost like the holy grail of hacking, particularly from the "phreak" hacking standpoint: to have control over phone lines like that, to be able to monitor phone lines. It's a tremendous power. SCHINDLER: When radio stations had the 10th caller wins a Porsche, 10th caller wins $10,000 contest, they could seize control of the radio station telephone lines, allow nine calls to go through, at that point, filter out all other calls, and make themselves the 10th caller. PETERSEN: The conspiracy won two porches and about $50,000 in cash andseveral trips to Hawaii. HARRIS: Crimes like this, the prosecutor says, convinced authorities to beef up their efforts to fight a new breed: computer criminals. SCHINDLER: We recognized years ago that if we didn't start gearing up, getting law enforcement agents -- FBI agents, Secret Service agents -- who could both talk the talk, understand how to investigate and move forward, we would have a problem. HARRIS: By 1990, the authorities were closing in on Petersen. He obtained another Porsche and fled to Texas. When police arrested him there, they found his computer. On it were credit card numbers he'd stolen right out of the credit card company's own database. PETERSEN: I have a terrible memory, you know. So I had to have everything that I ever did on file, recorded on paper or on hard drive. So when I was arrested, they had everything, I'd ever done -- there was an open book. HARRIS: Schindler and the FBI brought Petersen back to Los Angeles where he was offered a deal: become an informant, work for the FBI, and do less time in jail. SCHINDLER: The information he had that was of most interest to us was the ability to help us find Ron Austin, who had gone underground. AUSTIN: I should have expected him to roll on me. He knew I would have done the same to him had it been I that was caught first. He beat me to it. Poulsen had a falling out with him as well, Justin really had no reason to be loyal to either of us. HARRIS: Petersen also led them to the computer of Kevin Poulsen, his former partner/enemy in crime, who was then sentenced to more than four years in prison after admitting to computer fraud and zeroing in on FBI wiretaps. SCHINDLER: No honor amongst thieves: Certainly the credo applies with hackers. HARRIS: Out on bail and working for the FBI, Petersen continued his life in the fast lane. Soon he was up to his old tricks. PETERSEN: After two years of working for the bureau, I was tired of it and I went back to hacking. HARRIS: Which, Austin says, gave him a chance to take another stab at him. AUSTIN: I went through his trash and found all kinds of evidence of credit card encoding, coded sheets. And so I presented that to the government. SCHINDLER: We got evidence that he was engaged in or might have been engaged in some additional credit card fraud. We brought him to the offices here with his lawyer and we confronted him. HARRIS: Petersen made a run for it. PETERSEN: I asked to step out for a -- to have a conference with my attorney, hopped in the elevator, went down to the lobby and then just very quickly left the building. And as I was getting on a bus here, to get away as quickly as I could, I looked out the back window and I saw the U.S. Marshals standing out in front of the building looking around for me. HARRIS: Petersen went on the lam. PETERSEN: I became a fugitive, and I said, well, you know, I just need a lot of money. I need to get out of the country. HARRIS: In 1994, Petersen used everything he'd learned to try his boldest crime yet: an online heist. Once again, Petersen says, he broke into a telephone company building and hooked up his computer to the phone lines of a commercial lending company. PETERSEN: I tapped the network connection and watched all of the passwords flying by, the people using the system, literally thousands of connections at one time, logged all of those into my computer, went back and reviewed them all and got the codes that the bank uses to transfer money. HARRIS (on camera): So what did you do? PETERSEN: Issued a transfer for $150,000 to an account I had control over. HARRIS (voice-over): To avoid detection, Petersen's associate created a diversion. SCHINDLER: He needed, in part, to make sure that there weren't operators on scene at Heller (ph) watching as this wire was going through. PETERSEN: My associate decided to phone in a bomb threat on that. And we had planned to move a lot more money after that. HARRIS (on camera): Like how much? PETERSEN: Seven digits, or as they like to say in the '90s, two commas. HARRIS (voice-over): The money transfer was stopped when the financial institutions involved became suspicious, but who was behind it remained a mystery until Petersen was arrested nearly a year after running from the court house. PETERSEN: And they went, again, went though my computer and saw what I had been doing. HARRIS: In 1995, Petersen was sentenced to more than three years in jail. The judge said Petersen had done more damage with a computer than many criminals accomplish with a crowbar. Released in April, 1997, he violated the terms of his release and became a fugitive, hunted by federal marshals. Soon Petersen was caught again, served more time and was finally released earlier this year. (on camera): You're proud of what you did? PETERSEN: No, I'm not proud of what I did. I'm proud of, you know, accomplishing something and pushing the limits of technology and pushing, you know, going beyond what I was allowed to do. HARRIS (voice-over): But this time around, Petersen says he's going to play by the rules, earn money the legal way by starting an x-rated Web site. PETERSEN: I'm trying to put something a little more classy together than your typical Internet smut. But I'm in the process of putting together a adult entertainment network, talking about adult video on demand. HARRIS: In this new venture, Petersen will be in charge of protecting customers' credit cards. (on camera): Why should people trust you? PETERSEN: Well, I would think that if something hinky were to happen, that I would certainly be very questioned very quickly. This is a mainstream operation. There's no room for that kind of nonsense. (END VIDEOTAPE) GREENFIELD: Federal agents are so concerned about computer hacking that they showed up in record numbers at the annual hackers' convention held in Las Vegas several weeks ago. In fact, a popular pastime at this year's convention: the game "spot the feds," in which the convention emcee publicly outed anyone believed to be a government agent. (BEGIN VIDEO CLIP) That's CNN & TIME for tonight. Coming up Wednesday, be sure to watch "CNN & FORTUNE." Find out what "Fortune" magazine says are the top 10 stocks that should be part of your retirement portfolio. I'm Jeff Greenfield. For everyone at CNN, good night. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com