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+<!DOCTYPE html PUBLIC "+//ISBN 0-9673008-1-9//DTD OEB 1.0 Document//EN"
+  "http://openebook.org/dtds/oeb-1.0/oebdoc1.dtd">
+<html>
+<head>
+<meta http-equiv="Content-Type" content="text/x-oeb1-document; charset=utf-8" />
+<link rel="stylesheet" type="text/x-oeb1-css" href="DrBillBio.css" />
+<title>Bill Wattenburg’s Background: Magnetic Credit Cards</title>
+</head>
+
+<body>
+
+<h1>Magnetic Credit Cards</h1>
+
+<h2>(1973)</h2>
+
+<p>We believe that this event lends some insight into Wattenburg’s integrity in honoring
+contractual commitments and confidentiality agreements.</p>
+
+<p>The San Francisco Chronicle reported another of Wattenburg’s startling
+technical tricks during the BART controversy in 1973. A subsequent story in
+Business Week (August 11, 1973, page 120) stunned and sobered the nation’s
+banking and credit card industry which was planning to convert all credit cards
+to the same magnetic stripe system used in the new BART cards. Chronicle
+reporter Michael Harris approached Wattenburg in his Berkeley laboratory and
+asked Wattenburg whether it was possible to counterfeit the new multi-million
+dollar, “fool-proof” BART ticket magnetic stripe designed by IBM.
+This system was the first to use a magnetic stripe to record the value of a
+transit rider’s ticket. BART officials, IBM, and the nation’s banks had all said
+that “anyone would need at least $500,000 worth of specialized electronic
+equipment to copy the magnetic stripe and fool their reading machines.”
+(Anyone but Bill Wattenburg, as it turned out.)</p>
+
+<p>We located one of the technical people, now retired, who was on the scene in 1973 in
+order to verify a couple of minor items about Wattenburg’s financial involvement in this
+event. We got a lot more than we expected. We were able to get some of “the rest of the story” at this
+late date that was not available to the press in 1973.</p>
+
+<br />
+<p><b>Here is the story from press reports:</b></p>
+<br />
+
+<p>On June 4, 1973, in the San Francisco Chronicle (page 22), reporter Harris described how
+he was able to “boost” a 5-cent BART ticket to any value he wanted using an inexpensive scheme
+that Wattenburg had invented in a few hours. Worse yet, Wattenburg devised a simple scheme
+that any housewife could do in her kitchen! Harris described how the idea came to Wattenburg,
+and how he, reporter Harris, was later able to give startled officials a private demonstration at the
+Chronicle offices. The banking industry was about to issue the first of millions of credit cards
+that could have been counterfeited “by any high school kid”, according to Wattenburg. IBM and
+the banks went back to the drawing board for another year before they came up with a better
+scheme (that Wattenburg said he couldn’t easily beat—see story below).</p>
+
+<p>When Wattenburg was later asked by the press and angry government officials how he
+could so easily defeat the efforts of this country’s best engineers, he sent them the following
+apology:</p>
+
+<blockquote>“It’s not my fault. When engineers have too much money, they usually think only of the
+most sophisticated ways they can spend it. No one asks them to play devil’s advocate and think of
+the obvious until it’s too late. I never would have bothered to think about the subject. It was none
+of my business. Hell, I didn’t know that BART and banks all over the country were really planning
+to use this silly scheme.”</blockquote>
+
+<p>He continued:</p>
+
+<blockquote>
+<p>“All that happened is that this reporter Michael Harris, who is a very
+clever guy by the way, came along and bet me that I couldn’t find an easy way to copy this
+funny-looking BART ticket with a magnetic stripe. I thought it was just someone’s prototype idea. But
+he said that IBM had bragged that no one could do it for less than a half-million dollars. Now,
+that kind of gets a scientist’s juices flowing. I mean I didn’t interrupt my serious scientific work at
+Berkeley, but his challenge was on my mind for a few hours.</p>
+
+<p>“Suddenly, I remembered an obscure little thing about the physics of magnetic materials
+that most scientists don’t bother with very often. This phenomenon had given me fits in an
+experiment that I had done as a graduate student. Even my professor at the time didn’t believe it
+until I showed it to him. I thought, ‘Oh my God, the IBM guys couldn’t possibly have
+overlooked that! They’re the world’s experts on magnetic recording.’</p>
+
+<p>“I did a quick experiment with some magnetic tape that I bought at lunchtime in a music
+store on Shattuck Avenue, and damned if I wasn’t able to make a good copy of the BART ticket
+magnetic stripe that Harris had left with me to play with. I didn’t even have time to go to a BART
+station and see if my counterfeit ticket worked. When Harris came back the next day, I gave him
+the materials he would need and showed him how to do it in his kitchen at home. Well, you know
+the rest of the story. …”</p>
+</blockquote>
+
+<p>Wattenburg recently told us that he believed that the 1973 Business Week story contained
+some half-truths to steer thieves in the wrong direction. The press reports show him copying a
+credit card with another piece of magnetic tape. But the stories don’t explain that this was no
+ordinary piece of magnetic tape. He said that the 22 other ways discovered by Cal Tech students
+were all too clumsy or unreliable to be any threat. He believed that IBM and the banks didn’t
+really care if thieves concentrated on these. He said that the banks wanted the Business Week
+story written that way. He agreed to go along with the story for the sake of all the innocent
+people who could have lost their money, but it wasn’t pleasing to him to know all the things that
+were not disclosed to the press.</p>
+
+<p>He told us ruefully:</p>
+
+<blockquote><p>“At least I didn’t say anything dishonest to Business Week. They came around to
+see how I did it and I showed them the mechanics of how it could be done, They
+didn’t ask the right questions and I didn’t volunteer anything more. I hoped they would go out and
+try to copy a card with a piece of ordinary iron oxide magnetic tape, the way Michael Harris did.
+They would have discovered in a hurry that the scheme required something else special. But they
+didn’t. I was really surprised that they wrote the story without checking that. … That was the last
+time I ever took money to keep my mouth shut. I needed money at the time to do a lot of
+important scientific experiments that were on my mind, and I had a lot of good graduate students
+who needed support. The bankers were the big boys. Who was I to tell them what was ethical?
+But you know, when I asked them to provide a few scholarships, they turned me down. That is
+why it eventually cost them a hell of a lot more than a few scholarships.”</p>
+</blockquote>
+
+<p>One of Wattenburg’s scientist colleagues whom we interviewed in August 1990 told us
+what he thinks happened with the magnetic stripe. He said that obviously the whole thing was
+hushed up very quickly because of the potential losses due to thieves learning how to copy the
+magnetic stripe on the new bank credit cards. He said the rumor was that IBM or the
+banks, or both, paid Wattenburg a very handsome sum to help them devise a better scheme. He said that
+one of Wattenburg’s former Berkeley students who worked at IBM was asked to approach
+Wattenburg and that Wattenburg agreed to help them under the condition that he work only
+through his former student.</p>
+
+<p>This IBM engineer, Wattenburg’s former student, later went to work at Livermore. We
+were told that he took great joy in telling the funny stories that happened when the banking
+association attorneys tried to negotiate a deal with Wattenburg. He said they offered Wattenburg
+a very large amount of money if he would help them design a new scheme that couldn’t be
+counterfeited by anyone who did not have at least a hundred thousand dollars of specialized
+equipment which they itemized in the agreement. And Wattenburg had to agree to never again
+talk about or disclose to anyone how he had copied the BART card or anything about new
+schemes that would be developed. He said that Wattenburg agreed that the payment they offered
+seemed quite fair, provided there were a few minor changes. One change Wattenburg made to
+the agreement he sent back was “by anyone other than Wattenburg” in the clause “couldn’t be
+counterfeited by anyone”. The attorneys saw no problem with this because if he helped develop a
+new scheme, obviously he would be one of the few who would know how to beat it as well.
+They accepted the agreement.</p>
+
+<p>But then the bankers realized that Wattenburg could collect his money by only proving
+that “other people” could not copy some new magnetic stripe that he helped them develop. They
+protested that they already had a scheme that “other people” could not easily copy. They had paid
+large sums to universities and major consulting firms to have it tested and no one could copy it
+easily and reliably until Wattenburg came along.</p>
+
+<p>They demanded that Wattenburg change the language of the agreement. Wattenburg
+responded: “Well, tell me how much it is worth to you if I take it out.” Before it was over with,
+they had tripled the amount they first agreed to pay him. The former student said that Wattenburg
+succeeded in beating the next two magnetic stripe recording schemes that they proposed until
+they finally came up with one that he said he couldn’t beat without expensive equipment.</p>
+
+<p>Our contact laughed when he recalled what the former student often told his Livermore
+friends about Wattenburg’s assurance that he couldn’t beat the latest magnetic stripe scheme that
+is now used worldwide. He said: “I’ll bet that Wattenburg just got tired of fooling around with this
+business and told them it was OK. But, do you want to bet what will happen if Wattenburg is ever
+broke and he gets a hold of your credit card for a few hours?”</p>
+
+<hr />
+
+<p>We later learned that some of the 1973 press stories were probably encouraged for public
+consumption, and that maybe even Wattenburg left out a little of the story he told us—for a
+proper reason.</p>
+
+<p>Since this was the only episode in Wattenburg’s public exploits for which he admitted
+taking payment for his services, we decided to investigate it more deeply. In particular, we thought
+this would be a good situation in which to explore how he handled the confidentiality of his
+dealings with those who paid him in return for the same. We were able to locate the “former
+student” mentioned above. Now retired, he was willing to tell us almost all of “the rest of the
+story” since he felt that there was no danger at this late date.</p>
+
+<p>All of the above story is mostly true, as far as it goes. But there was more that the public
+was not told, and for good reason. He said that in the contract that they wanted Wattenburg to
+sign, he refused to disclose, even to IBM and the banks, the nature of the magnetic material he
+used to copy the BART and bank cards. Wattenburg had made some magnetic strips that looked
+like the ordinary Mylar-backed audio magnetic tape with the usual iron oxide magnetic surface,
+but it really had been coated with another special material. Wattenburg gave the reporter Michael
+Harris enough of this special magnetic tape to do his experiment at the BART ticket machines
+and for Harris to later give another demonstration to various officials at the Chronicle offices.
+They never knew for sure what the material was.</p>
+
+<p>He further explained that, unknown to Wattenburg, IBM and others had deliberately
+arranged the competition with Cal Tech students to see who could counterfeit the BART cards.
+But, the BART cards didn’t include all the coding safeguards that were used in the scheme that
+was designed for bank credit cards. He says he believes that IBM knew that most anyone could
+use simple magnetic tape reading equipment to read a BART card magnetic stripe and make a
+copy, as the Cal Tech students and others quickly proved.  But, they were confident that no one
+could counterfeit the more valuable bank cards the same way because ordinary magnetic reading
+equipment could not read the special magnetic coding that they intended to use on the bank
+cards.</p>
+
+<p>In other words, he felt that the well-publicized student competition for copying the BART
+cards and the 22 schemes they came up with was a ruse to cause potential thieves to go in the
+wrong direction and frustrate themselves when the bank cards were issued. He said he learned
+that the first thing that IBM had tested was to make sure that their magnetic coding scheme on
+the bank cards could be not read by ordinary magnetic tape reading equipment. They were no
+fools.</p>
+
+<p>But they did not count on Wattenburg coming along. He found a way to physically copy
+the magnetic coding on the IBM stripe directly onto another magnetic stripe without using any
+intermediate electronic read-write cycle. His scheme copied everything, including the magnetic
+special coding on the bank cards that couldn’t be copied by inexpensive magnetic tape reading
+equipment. In fact, they found out that Wattenburg’s copies had as much resolution (were as
+good) as the original magnetic stripe that he had copied. This scared the hell out of them. This
+meant that he could copy the new bank cards as well.</p>
+
+<p>He said that Wattenburg refused to tell IBM or the bankers what the material was that he
+had used to make his special magnetic tape that could capture an image of their magnetic
+stripes—and could be accomplished in the kitchen. This was the real sticking point in the agreement that
+they wanted with him. Wattenburg insisted that if IBM scientists used their heads they would
+soon figure it our on their own. He felt that he didn’t want to be the one who gave license to
+thieves by being the first one to disclose it. He felt that the university would get a bad name. They
+finally settled on an agreement with him to help them anyway. And, they had to pay him
+handsomely to take out the “anyone other than Wattenburg” clause.</p>
+
+<p>He said that it became an obsession at IBM San Jose for the next year to figure out what
+Wattenburg had done. He remembers engineers and scientists meeting at lunch time to compare
+notes on their latest ideas and experiments. They even hired a guy from Livermore who had
+worked with Wattenburg to help them as a consultant. They found all sorts of new ways, but none
+of them could be accomplished with something so simple as a clothes iron the kitchen. He said
+that the attorneys got very angry with Wattenburg. They essentially accused Wattenburg of
+being a fraud and demanded that he disclose the answer or they would recommend that his future
+payments due under their contract be stopped. Our contact says that he had to take these
+communications to Wattenburg at the university. Wattenburg’s answer to the attorneys was that
+IBM ought to be very happy that their engineers were discovering so many new ways on their
+own that they never would have considered if they had not been trying to discover his way. He
+offered to demonstrate his scheme again anytime they would like.</p>
+
+<p>He says that he never heard whether they figured it out on their own or whether
+Wattenburg eventually told them. All he knows is that they eventually came up with a new scheme
+that could not be easily counterfeited by Wattenburg, so he said.</p>
+
+<p>He told us that he was impressed that, for ten years, Wattenburg would never tell even
+his best friends at Livermore who insisted that he could tell them his method under the strict
+security rules that prevailed at this nuclear weapons laboratory. He heard one senior laboratory
+official jokingly promise Wattenburg that he would personally stamp the document “classified” if
+Wattenburg would write it down for them. He said that Wattenburg would not even confirm
+what the answer was long after it had became generally known to scientists and engineers what
+the special material was that he had used.</p>
+
+<p>Our contact said that he always respected Wattenburg for never violating the agreement
+that he knew Wattenburg had signed with the bankers. But then he added: “if you knew how
+much they paid him in real dollars today, you would not have taken a chance on losing it either by
+opening your mouth just to show off.”</p>
+
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