Flayton Electronics

Brett Flayton, CEO of Flayton Electronics, stared intently at a troubling memo on his desk from the firm’s head of security. Running his hands through his full head of barely graying hair, he looked not unlike his father did when he established the first Flayton Cameras and Stereos 25 years ago.

The security situation had come to Brett’s attention just before nine o’clock the previous evening. On his way home from a vendor meeting, he had been settling into an armchair in the airline lounge. He had barely opened

Electronics News when his mobile phone rang.

It was Laurie Benson, vice president for loss prevention. “Brett, we have a problem. There might be a data breach.” Laurie, a tough but polished former Chicago police detective, had been responsible for security at Flayton’s for almost three years. She had an impressive record of reducing store thefts while building productive relationships with local schools, community groups, and law enforcement.

“What kind of data breach?” Brett asked. His tone was calm, as always, yet he scanned the lounge to make sure that no one could overhear. “I’m still not sure,” Laurie admitted. “I was contacted by Union Century Bank. They regularly examine their fraudulent accounts for patterns, and we’ve shown up as a common point of purchase for an above-average number of bad cards. They’re getting me more information, but I thought you’d want to know right away. It could be nothing—or it could be significant.”

Brett recalled the newspaper stories he had read about stolen laptops with veterans’ records stored on them and about hackers trying to penetrate eBay and other big online retailers. His firm was just a regional chain with 32 stores in six states and a modest online presence. Flay ton’s could hardly be a target for stealing lots of customer data. Or could it? “Laurie, I’m not sure I understand. People were using stolen credit cards at our stores?

Our clerks weren’t checking cards correctly?” “No,” she replied earnestly....