Heartland breach resulted to $2.5 million loss, CEO says

By Robert Westervelt | May 11, 2009

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Heartland Payment Systems Inc. said it was experiencing losses this quarter as a direct result of a massive data breach it disclosed in January when investigators discovered a malicious program sniffing credit card data passing through its systems.

The company said it took a $2.5 million loss for the quarter as a result of spending more than $12.6 million in legal bills, fines from MasterCard and Visa and administrative costs.

The announcement was made during the company's financial earnings call, where Carr said the costs associated with the breach could continue to climb.

"Our defense of the claims regarding the processing system intrusion remains ongoing," he said. "Much of the legal work remains to be done and it is difficult to anticipate when these matters will come to a conclusion."

Carr also admitted for the first time that since the Princeton, N.J.-based processing giant announced a breach of its systems, some of the payment processor's clients have switched to competitors as a result of the breach. He said some competing processors resorted to scare tactics.

"We have had many competitors that have been very supportive and professional, and we certainly don't want to tar all of our competitors with the same brush," Carr said. "We have had some competitors telling merchants falsely that they would be fined $10,000 a day if they stay with Heartland. We think we're through the worst of that."

Car said less than $1 million of the breach costs were fines levied by MasterCard and Visa against the company's sponsored banks. The fines are being contested, he said. More than $500,000 relates to a fine assessed by MasterCard against the sponsored banks in which the card company said Heartland failed to take appropriate action upon learning that a breach was suspected. Carr said the fine is in direct violation of both the MasterCard rules and law.

"Heartland believes that it responded appropriately to all the information that it learned regarding the possibility of a system breach and upon discovering the intrusion it took immediate and extraordinary action to address the intrusion," Carr said. "Moreover, Heartland believes that throughout the events of '08 and '09 it has fully cooperated with MasterCard's investigation of first the suspicion and later the fact that an intrusion had occurred."

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