FORMER FBI INFORMANT A FUGITIVE AFTER HELPING TRACK FELLOW HACKERS Sunday, July 31, 1994 By Keith Stone, Daily News Staff Writer Computer outlaw Justin Tanner Petersen and prosecutors cut a deal: The Los Angeles nightclub promoter known in the computer world as "Agent Steal" would work for the government in exchange for freedom. With his help, the government built its case against Kevin Lee Poulsen, a Pasadena native who pleaded guilty in June to charges he electronically rigged telephones at Los Angeles radio stations so he could win two Porsches, $22,000 and two trips to Hawaii. Petersen also provided information on Kevin Mitnick, a Calabasas man wanted by the FBI for cracking computer and telephone networks at Pacific Bell and the state Department of Motor Vehicles, according to court records. Petersen's deal lasted for nearly two years - until authorities found that while he was helping them undercover, he also was helping himself to other people's credit cards. Caught but not cornered, the 34-year-old "Agent Steal" had one more trick: He admitted his wrongdoing to a prosecutor at the Los Angeles U.S. Attorney's Office, asked to meet with his attorney and then said he needed to take a walk. And he never came back. That same day, Oct. 22, 1993, a federal judge issued an arrest warrant for Petersen, describing him as "most unre- liable. Clever, but unreliable." Now FBI agents are searching for their rogue informant - scouring computer conventions and nightclubs for a man they say can change his identity and fill his pockets with cash just by pushing a few buttons. Two weeks ago, the U.S. Department of Justice announced it had found no proof of criminal wrongdoing in the government's handling of Petersen, but the case was referred to the FBI's Office of Professional Responsibility for more investigation. The FBI routinely investigates all "allegations of serious misconduct or criminality on the part of FBI employees," said supervisory special agent Peter Ginieres. Pushing the investigation is Santa Monica attorney Richard G. Sherman, who contends the FBI used Petersen as an informant while knowing he was breaking the law. The FBI used Petersen to try to collect information on Mitnick, a longtime friend of his client Lewis De Payne, Sherman said. Mr. De Payne hired Sherman, a well-known criminal defense attorney best known for the Karen Silkwood and Randy Weaver cases, to sue the government and have the agents involved prosecuted. Mr. Sherman contends his client has evidence that Petersen was engaged in illegal wiretaps and fabricating evidence by creating fictitious billing records. FBI agents would then use those records to secure a search warrant. The government should not have allowed Petersen to remain free, particularly since agents knew he could manipulate computers to change his identity, eavesdrop on telephone lines and use other people's credit cards, Sherman said. "How can you let a man like this run loose who had a record he had - who had the criminal problems he had?" Sherman said. "They don't want to find this guy because then they are really in trouble. Why? Because he will tell what he was doing for them." Sherman said. De Payne is also expected to file a multi-million dollar class action lawsuit against Pacific Bell and GTE California for complicity in allowing their system to be used illegally at the whim of FBI agents. PLEA AGREEMENT Assistant U.S. Attorney David Schindler was reluctant to discuss the Petersen case because he said it is a continuing investigation and the hacker remains a fugitive. But Schindler said that under a plea agreement, Petersen was freed on bond in exchange for his testimony against Poulsen in the future. And Schindler disputed Sherman's core allegation - that the government knowingly allowed Petersen to break the law. "He describes this nefarious plot by the Justice Department and FBI to run around the city and do wrong things - and this is patently wrong," Schindler said. As soon as the government found out Petersen was continuing to break the law, there was an attempt to take him into custody, Schindler said. "The court put him on bail. We had no reason to believe he would take off," Schindler said. "That is the gamble, as with any other case. There are a million people on bail pending sentencing," Schindler said. However, court records and an anonymous tape recording of Schindler's conversations with FBI agents reveal that he was aware of Petersen's activites. Petersen's attorney declined to comment on the case. A month after Petersen fled, he spoke with a magazine for computer users about his role as an FBI informant, who he had worked against and his plans for the future. "I have learned a lot about how the bureau works. Probably too much," he said in an interview that Phrack Magazine published Nov. 17, 1993. Phrack is availabe on the Internet, a worldwide network for computer users. ARRESTED IN 1991 Petersen told the magazine that working with the FBI was fun most of the time. "There was a lot of money and resources used. In addition, they paid me well," he said. Petersen began his second career as an undercover agent for the government after his arrest in Dallas in the summer of 1991, court records show. "First of all, I didn't have much choice," he told Phrack. According to an affidavit from an FBI agent, Petersen had admitted that he broke into a Pacific Bell computer, which in the eyes of the law is viewed as a "federal interest computer." That provided the leverage the FBI needed against Petersen. "If I didn't cooperate with the bureau," he told Phrack, "I could have been charged with possession of government material." "Most hackers would have sold out their mother," he added. Agents had other evidence: A raid on Petersen's home in Dallas yielded stolen or fraudulently obtained credit cards, stolen mail and checkbooks with other people's names, court records show. They also found computer equipment and manuals that described how to enter Pacific Bell telephone computers, according to the records. Further investigation showed that Petersen was wanted on five felony warrants in Maryland, and one in Los Angeles under an alias, court records show. RELEASED ON BOND Despite such serious allegations, Petersen was released on bond and moved to Los Angeles where court records say he was "acting in an undercover capacity" to investigate people in California. Schindler said Petersen was working with the government under a common arrangement. "They are placed on bail pending their cooperation and testimony," he said. Sherman accuses the government of allowing Petersen to use his computer skills to target innocent people, by generating telephone records through which the FBI can secure a warrant. In his efforts to inform on Mitnick, he also tried to get close to a co-worker of Mitnick and his long-time friend, Lewis De Payne, the attorney contends. "The people who are committing crimes are these ... damn FBI agents and U.S. Attorneys who are allowing Petersen to run wild and illegally wiretap for them," Sherman said. De Payne, who describes himself as a reformed hacker, said Mitnick introduced Petersen to him as someone who had known Mitnick's half brother before his death in January 1992. "He would ask dumb questions: Who else do you know? Why systems do you hack?" Depayne recalled. Petersen refused to believe that De Payne no longer was hacking, De Payne said. "For anything I need," he told Petersen, "it is a lot easier to subscribe to it." In retrospect, De Payne said he believes the FBI "wanted the probable cause to search people who Mitnick associated with." And furthermore, De Payne and Sherman insist that Petersen knew how to manipulate Pacific Bell computers to create false records to try and implicate De Payne and Mitnick. Petersen told Phrack that he had entered two Pacific Bell computers, one that allowed him to set up telephone services. The other one, he said, "allowed us to drop in and monitor and control phone lines from home with the use of a computer system." Pacific Bell officials said their computer system called Switched Access Services is designed for remote testing of home and business telephones. Citing security of the Pacific Bell system, telephone official Richard Motta would not provide other details about the system. USED PHONE RECORDS Court records show that FBI agents used information gathered from phone records to obtain search warrants in September 1992 for Mitnick's apartment in Calabassas, the apartment of Mitnick's co-worker and De Payne's Los Angeles apartment and business. In the two years since the searches, the government has not filed charges against De Payne or the co-worker, Mark Kasden. Agents gathered enough information, however, to take out an arrest warrant for Mitnick. The 29-year-old son of a Panorama City waitress had a history of hacking and conviction for computer crimes. The warrant contends Mitnick violated the terms of his probation from an earlier conviction by having broken into computer and telephone networks at Pacific Bell and the state DMV. Sherman said he believes Mitnick merely was using his computer skills to check on Petersen, whom he had begun to suspect. When Petersen found out, he fabricated toll records in an effort to frame Mitnick before he exposed Petersen and the FBI sting. It was a showdown between two master hackers - Mitnick and Petersen. Now both men are on the run. Petersen told Phrack he was not concerned about being caught. "I find people for a living. I don't think it will be hard to use what I know to keep a low profile," he said. When he was arrested in Dallas, Petersen had been using the names Eric Heinz and Samuel Grossman. He was driving a stolen Prosche, according to court records. His Social Security numbers are "too numerous to list," according to his arrest warrant. Petersen is described as 5 feet, 11 inches, 175 pounds, with brown hair - "sometimes paltinum blond." But his most telling characteristic is that he walks with the aid of a prosthesis because he lost his left leg below the knee in a car accident. Heavily involved in the Hollywood music scene, Petersen's last known employer was Club "Velvet Jam," one of a string of clubs he promoted in Los Angeles. Petersen is the only child of a chiropractor whose parents divorced when he was 8, and he lived with his mother, first in the Washington, D.C., area and then in Lincoln, Neb. By his teens, he had begun to show interest in electronics, according to his parents, Donald Petersen and Joanne Dvorak. About the same time that Petersen dropped out of high school, he got into trouble with the law for breaking and entering, Donald Petersen said. "That was our initial falling out," he said. At 23, Petersen began to read about computers, bought one for himself and spent a lot of time in front of it, Joanne Dvorak recalled. "He had a very deep curiosity about every- thing," she said. Dvorak said her employment involves working with mainframe computers, although she would not provide more details. COMPUTERS FOR PROFIT In 1984, Justin Petersen left home and moved west - exactly where, his mother and father said, they did not know. "I think he is out of touch with reality," Donald Petersen said. "I think he lies very much and is not sure when he is lying." Eventually, Justin Petersen ended up in California and became involved in promoting nightclubs. he also was using computers for profit. According to court records, Petersen used a computer to intercept and seize control of telephones at KPWR-FM (105.9) during a promotional call-in contest in 1989. He walked away with $10,000, court records show. Petersen told Phrack Magazine that he and his accomplices "won thousands of dollars, trips to Hawaii and a few Porsches." According to an affidavit from an FBI agent, Petersen admitted to stealing Pacific Bell equipment, entering telephone computers and tapping telephones to gain access to people's credit reports. When pacific Bell and the police eventually went after him, Petersen told Phrack he escaped authorities during a high-speed chase and moved to Dallas. In Dallas, authorities say, Petersen continued to use computers and telephones for crime. Petersen untimately pleaded guilty to credit-card fraud charges and charges arising from the Los Angeles radio contest scheme. He agreed to testify against Kevin Lee Poulson, a computer hacker known as the "Dark Dante" who was rigging radio contests. But Petersen had fled before he could live up to his end of the bargain. Regardless, Poulson pleaded guilty June 14 to seven federal charges, including computer and mail fraud. Petersen told Phrack he had no regrets about working with the FBI and turning in fellow hackers. "We all know the risks," Petersen said. "FOr me it is just a job. And an interesting one at that. I wasn't out there just busting anyone. We were looking for the hard-core, malicious hackers." And Petersen warned that he still may take work as an informant. "Watch your(selves) kiddies - it's easy to change my handle!"