It has been reported by a twitter user, Justin (@BigMastadon) that PayPal has confirmed to him that Xbox LIVE accounts are being hi-jacked for payments used by the electronic payment service today.

He, himself was aware of the problem after his own Xbox LIVE account was used in a phishing scam to transfer funds from his PayPal account linked to his Xbox LIVE profile – in total he was scammed out of $241.00.

Quoted by Justin to VideoGameWriters:

When I spoke with the Microsoft agent, he noticed the charges and didn’t even question me about them. Immediately he recognized the fraud and sent it on to the investigation team. He described the situation as someone recovering the account and purchasing all the Microsoft Points shown. Then they purchase the Gold Family pack so they can transfer the points to another Gamertag on their console.

Because the fraud seems to involve the use of transferring the profile to another console, if you are unable to sign into Xbox LIVE today – it might just be that your profile has been tied to another console. To safeguard yourself, please change your Windows LIVE ID and in our opinion, it’s better to completely remove the PayPal account from your Xbox LIVE Payment options. This can be done via visiting Xbox.com, then My Account, and editing the Manage Payment Options screen.