I am not sure exactly what is happening with the card reader. I searched the Knowledge-base and found some Card Reader solutions that may help you:
I hae a B405 and a Card Reader ELatec.. when put my car, the popup login authentification appparear...and if I enter my name and password (ldap) I connect..
I have a C405 with the same setup and I don't have the second authentification... Why ??
I use Papercut, but my Xerox have the same setup...