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<h1>Magnetic Credit Cards</h1>

We believe that this event lends some insight into Wattenburg’s integrity in honoring
contractual commitments and confidentiality agreements.

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.)

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.

Here is the story from press reports:

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).

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:

<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>

He continued:

<blockquote>
“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.

“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.’

“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. …”
</blockquote>

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.

He told us ruefully:

<blockquote>“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.”
</blockquote>

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.

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.

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.

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.

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?”

<hr />

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.”

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