Watch Out For Wire Fraud

Watch Out for Wire Fraud
By Danielle J. Butler Managing Partner of Luxury Law Group

Wire fraud is ramped and simple to commit. Wire transfer instructions are emailed to the buyer from the seller or seller’s representative. The buyer complies with the instructions to the “T”. Within hours, the seller contacts the buyer asking if the money has been sent yet. The buyer checks with their bank and is assured that the funds have been transferred out. However, when the money has still not shown up, everyone begins to retrace steps. As it turns out, the wiring instructions were bogus. The email came from an address that looked very much like that of the sellers or sellers’ representative, but it was not actually theirs and was that of a hacker.

And the recipient bank account that the buyer sent the wire to? Well, that was a real account opened by the hacker and the money did get wired there; it just wasn’t the seller’s account. And, yes, it has been emptied out by now and probably closed.

This scheme has been perpetrated by hackers daily, and it has been going on around the country for a while now.

First, hackers identify the email accounts of brokers, buyers, sellers and their representatives, such as attorneys, their lenders and/or accountants. Then, the hackers hack directly into these accounts and identify emails referencing pending deals. From these strings of emails, the hackers pull out specific details about the deal, such as: (a) the parties names, (b) the escrow company involved, (c) the person in charge of wiring funds, and (d) other information specific to the transaction.

Next, they send fraudulent email directly to the buyer or buyer’s representative, making it look like it was sent by the seller, seller’s broker, sellers representative etc… These fraudulent emails now direct the buyer and/or buyer’s lender to wire the closing funds directly to a different bank account than provided in a previous email or in the escrow instructions by the seller. Obviously, this new bank account is controlled by the hacker, not the seller.

Then, if the buyer or buyer’s lender does not detect the fraud, then the money is wired to the bogus account controlled by the hacker, the money is immediately withdrawn and the account is usually closed. Due to the amounts involved and the complex nature of investigating and prosecuting wire fraud, the odds are that the authorities will do nothing to help in these instances.

For the most part, prevention recommendations tend to focus on the non-secure nature of most email accounts. It’s a fair bet that most people do not have secure email accounts and they can be easily hacked. But, in a world where Target, Sony, and the Defense Department get hacked, it is not plausible to think that most people will ever enjoy a very high level of email security.

While suggestions like two-factor authentication and encrypted emails may have their place, it is recommended that buyers and buyer’s representatives should confirm all email wiring instructions directly with the recipient by calling them on the telephone. Yes, I know that is a foreign concept, but critical in today’s world. In that conversation, the correct wiring account number information should be repeated verbally before taking any steps to have the funds transferred. Certainly, if wiring instructions are changed via email, the buyer should confirm that by phone with the intended recipient of the wire, seller or seller’s broker or representative.

It is recommended to look into Criminal Fraud Insurance, Cyber Crime Insurance and Social Engineering coverage within your Errors and Omissions insurance policy. Crime policies address actual stolen funds type of losses verse the Cyber policies which generally address stolen information and the liability and required response costs.

The insurer would want to see that internal controls are put in place to avoid losses. For example, this would usually require that any wire transfer changes are verified via a phone call verification back to the designated contact at the seller’s preexisting number on file to ensure that the seller actually made such changes. Crime insurance, beyond just the Social Engineering piece, is a very valuable coverage and recommended for all of our clients to carry.