A new online scam has arrived: extortion by a hacker who breaks into your machine and encodes your files making them unreadable until you pay a ransom, according to security company Websense.

The scam is said to be this: an infection occurs when someone visits a malicious website, thanks to an Explorer vulnerability. The infection directs the computer to download code from another machine. That code then encodes computer files on your machine making them unreadable until you pay $200 into an online account.

The scam is certainly feasible, although since the money route can be traced and the actions are highly illegal, its feasibility as a widespread online con is questionable. Websense has refused to say where its report came from.

"We had a report from the field, but do not divulge what our source for that is," said the company's senior director of security, Dan Hubbard. "What happened was after doing some forensics on the actual computer that was infected, we noticed that the user visited a website 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 site and download another piece of code. "So first the Trojan downloader infected the machine, then the downloader went to a second website and downloaded the new code and then started its process. 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 $200 in an E-Gold account, but that did not happen," he said.

Instead, Joe Stewart, a senior security researcher at Lurhq 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," 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's 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 Symantec. "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.