fail_state_notification.pdf

[Content by Gemini 2.5]

Community Threat Brief – .fail_state Ransomware

(Also reported as “FailState”, “Fail_State”, or internally “FSN-2199”)

Technical Breakdown

1. File Extension & Renaming Pattern

  • Confirmed extension appended to every encrypted file: .fail_state
  • Renaming convention:
    Original names are left intact, the string .fail_state is simply suffixed.
    Example:
    Q4-Financial.xlsx → Q4-Financial.xlsx.fail_state
    (No e-mail address, random ID, or second extension is added.)

2. Detection & Outbreak Timeline

  • First public submission to malware repositories: 2023-11-14 (VirusTotal)
  • Major spike in telemetry: Early December 2023 (especially 06-Dec through 10-Dec)
  • Still circulating in 2024 campaigns; minor binary updates seen March 2024 (version 2.2.1)

3. Primary Attack Vectors

The group is opportunistic but relies on three main infection highways:

  1. Exploitation of unpatched public-facing assets
  • favours CVE-2023-4966 (Citrix NetScaler “CitrixBleed”) & CVE-2023-20198 (Cisco IOS-XE)
  • automated chaining of harvested credentials → remote desktop → PSExec/AnyDesk
  1. Phishing with ISO/IMG containers
  • Lure e-mails reference “contract cancellation”, “tax retrial notification”, or “banking fail state”
  • Container holds a .bat + .dll side-loader that spawns the ransomware PE
  1. Living-off-the-land once inside:
  • Uses AD discovery tools, net.exe, wmic, nltest, BloodHound-collected JSON, then pushes the binary via \\TARGET\ADMIN$\tsvipsrv.exe

(There is NO current evidence of worm-like SMB/EternalBlue propagation; fails to spread without legitimate credentials.)

Remediation & Recovery Strategies

1. Prevention (must-do checklist)

☑ Patch externally facing VPN gateways, firewalls, Citrix ADC/Cisco IOS-XE immediately (see CVE list above)
☑ Enforce phishing-resistant MFA on ALL remote access (VPN, Citrix, RDP, etc.)
☑ Disable ISO/IMG auto-mount via GPO; mark e-mail attachments *.iso,*.img,*.vhd as high-risk in Outlook
☑ Segment flat networks – use VLAN + firewall rules so a single compromised workstation cannot reach DC or backup VLAN
☑ Deploy WDAC/AppLocker to block unsigned binaries launching from %TEMP%, %PUBLIC%, C:\Users\*\Downloads
☑ Apply “Controlled Folder Access” (Windows) or similar anti-ransomware module
☑ Maintain offline + versioned backups (3-2-1 rule) and TEST restores at least monthly

2. Removal / Containment Workflow

  1. Power-off and isolate first affected machine(s); disable Wi-Fi/Bluetooth, pull Ethernet
  2. Reset ALL privileged credentials from a clean device; assume AD compromise
  3. Collect evidence: capture RAM, Prefetch, event logs, MFT, ransomware binary (tsvipsrv.exe, FailState.exe, FS_enc.exe). Do NOT delete yet
  4. Scan with updated EDR/AV engine: detects as
    Trojan:Win64/FailState.A, Ransom:Win32/FailState, Ransom.Win64.FAILSTATE.SM,
    but do NOT rely solely on signature quarantine – rebuild rather than “disinfect”
  5. Re-image machines from known-good gold image; keep one VM snapshot of patient-0 for forensics
  6. Patch/retro-harden before reconnecting to network; push GPO updates (RestrictRemoteDrives, “Deny access to this computer from the network” for local users, etc.)

3. File Decryption & Recovery

  • Current decryption possibility: NO – the malware implements Curve25519 + ChaCha20-Poly1305 in AEAD mode, with the private key residing solely in the attacker’s hands
  • Brute-force: Infeasible in human-acceptable time
  • No known flaw: Researchers have found no key-leakage bug or reuse pattern as of June 2024
  • Available tools:
  • FailState_Enumerator.exe (open-source utility that lists what was encrypted so you can triage vital data)
  • FailState_ResidualScout.ps1 (PowerShell that hunts for scheduled task “FailStateReboot” and residual C:\ProgramData\FSN\ config)
  • None of the above decrypt; they only aid forensics and bulk-rename removal if you restore plain files from backups
  • Only reliable option: Restore files from unaffected offline backups; negotiate with attacker remains NOT recommended because most victims who pay get a half-functional decryptor or are re-targeted weeks later

4. Other Critical Information

  • Persistence & evasion:

  • Installs scheduled task FailStateReboot that reruns encryption if admin tries to reboot after seeing ransom note

  • Uses bcdedit /set {default} recoveryenabled No & bootstatuspolicy ignoreallfailures to disable safe-boot repairs

  • Performs 3-pass overwrite on shadow copies via vsadmin resize shadowstorage, then deletes itself after final pass

  • Ransom note:
    Filename: fail_state_notification.pdf (same as your question; that’s how victims first correlate the malware)
    Demands 0.04 – 0.18 BTC (varies by size of org), wallet is hard-coded in the binary but note tells victim to visit TOR portal

  • Notable differences from other families:

  • Skips extension list is short (.exe, .dll, .sys, .fail_state) but aggressively kills SQL/Oracle/Mongo services to unlock DB files

  • Before encrypting, steals interesting filenames (wildcard keywords “statement”, “budget”, “secret”, “client”) and uploads to Mega.nz for leverage (double-extortion)

  • Broader impact:

  • Concentrated hit against mid-size manufacturing and US county governments during Dec-2023 & Jan-2024;

  • Average downtime reported to Coveware: 10 days without solid backups, 1.1 days with rehearsed offline restore

  • Chain-of-custody evidence shows the same BTC wallet cluster overlaps with “Kevin3” affiliate panel used by DarkCasino and Brutus botnet crew—possible shared eco-system rather than wholly new group

Essential Reading & Patches

  • CISA Alert AA23-304A – Guidance on CVE-2023-4966 CitrixBleed exploitation
  • Microsoft Security Response Center – ADV230004 (ISO-mount abuse Advisory)
  • Vendor patches/fixes:
  • Citrix ADC 14.1-12.35+ or 13.1-52.27+
  • Cisco IOS-XE 17.9.4a, 17.6.8-SP1, 16.12.11-SP1
  • Tooling:
  • CISA “StopRansomware” guide & downloadable blue-team check-lists
  • CrowdStrike “FailState” report (Feb-2024) – IOC csv available

Bottom line: In the absence of a free decryptor, prevention + resilient offline backups are your only reliable defense against .fail_state. Patch external services today, review backups tonight—before tomorrow’s spike starts.