A hacker has apparently found a way to encode computer files and hold them hostage until the intended victim pays for a decoder tool to unlock the files.

The original infection occurs when the user visits a malicious Web site that exploits a vulnerability in Microsoft Corp."s Internet Explorer Web browser, according to San Diego-based Websense Inc., which uncovered the extortion attempt.

"We had a report from the field, but [we] do not divulge what our source for that is," said Dan Hubbard, senior director of security and research at Websense. "What happened was after doing some forensics on the actual computer that was infected, we noticed that the user visited a Web site that has since been shut down. And the site, through an Internet Explorer vulnerability, downloaded some code onto the machine and ran it without user intervention."

Hubbard said the sole purpose of the infection was to go to a second Web site and download another piece of code.

"So first the Trojan [horse] downloader infected the machine, then the downloader went to a second Web site and downloaded the new code and then started its process," Hubbard said. "It goes through and looks at your hard drive for around 12 different file types, including documents, photos, databases, Zip files and spreadsheets, and if it matches those file types, it actually encodes the data."

According to Hubbard, the malware goes through all drives on a machine, whether they"re removable or not, and at the end of the process deletes itself -- leaving behind a text file with instructions on who to contact to have the files changed back to a readable format.

"In this particular case, the end user did contact the third party, and there was a request to deposit US$200 in an E-Gold account, but that did not happen," he said.

Instead, Joe Stewart, a senior security researcher at Lurhq Corp. in Chicago, looked into the case after hearing about it and contacted Websense with a solution. "I took a look at the encryption scheme and found that it was a pretty trivial and easy to break encryption scheme," Stewart said. "So I wrote a decryptor for that and put that information out there for our customers -- to tell them that if they get hit by this, we can decrypt it and you don"t have to pay this guy ransom."

That solution might not work next time, experts said.

Although this hacker used a weak form of encoding, someone in the future could use a much more sophisticated level of encryption, Hubbard said. Or a hacker could remove the files or transfer them to another location and try to extort money for their return, he said.

"This was not a very sophisticated technique, although it was a fairly ingenious idea," Hubbard said.

Stewart agreed.

"If this evolves, and the person keeps getting more and more money from it -- and if they see the need for more advanced encryption -- they could put it in, and we wouldn"t be able to break it," he said. "All we would be able to rely on is getting the key from the original Trojan author, which means you would have to either pay the ransom or law enforcement would have to actually catch the guy and get the key off his hard drive."

"It"s like someone coming into your house, putting all of your valuables into a safe and not telling you the combination until you pay them," said Oliver Friedrichs, a security manager at Cupertino, Calif.-based Symantec Corp. "It is a disturbing new trend and really a subversive use of cryptography that we haven"t seen in the past. In the past, cryptography has been largely used to protect information. In this case, it"s being used to hold your information hostage."

Hubbard said the best protection against this type of cyberattack is staying up to date on latest security patches and making sure users have the latest signatures for the security software on their computers.

"The not-so-obvious is trying to learn about these types of things ... and to know where to go if something does happen," Hubbard said.