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not detect the fraud, then the money is wired to the bogus account controlled by the hacker, the money is immediately withdrawn and the account is usually closed.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.

* The information offered in this column is summary in nature and should not be considered a legal opinion. **Danielle J. Butler the Managing Partner of Luxury Law Group. She maybe contacted at 954-745-0799 or  My practice focuses on transaction and litigation matters for yachts, aircraft, real estate and fine antiquities.

I have extensive experience handling the full range of transaction matters, including the purchase, sale, financing, new construction, chartering, and registration of luxury assets, including yachts and jets. I also negotiate and draft a variety of contracts, including loan documents, purchase and sale agreements, charter parties, construction contracts and crew agreements. I regularly counsel clients on ownership structures, state and federal tax consequences of asset ownership, federal duty, asset liability exposure and compliance with U.S. laws and international treaties regarding asset ownership.

When a dispute arises, I represent clients in litigation, mediation and
arbitration proceedings involving a range of claims, such as breach of contract, brokerage commissions, insurance coverage and asset seizures, arrests, repossessions and foreclosures. I have been voted by South Florida Legal Guide as one of Florida’s Top Up and Coming Attorneys for 2011, 2012, 2013 and 2014, which is an honor that my peers hold me in such high regard.

I earned my Bachelor of Science in Marine Affairs from University of Miami, Florida and my Juris Doctor from New York Law School. I worked for the United States Environmental Protection Agency, as a Marine Biologist before attending law school, which was such an amazing opportunity. I am happily married to Anthony Treglia and we have two adorable Chihuahus. I relax and unwind by boating, diving, jewelry making and painting.

On a fun note, I am a licensed pyrotechnician, and I have long been involved in my family’s business, Fireworks by Grucci. Established in 1850, Fireworks by Grucci today produces more than 300 performances annually on both national and international stages. Therefore, I also handle matters concerning explosives and fireworks! My unique background and experience helps me help you in these highly specialized and complex areas.

I enjoy writing and speaking on asset ownership and I am a published author and lecturer on legal issues often globally. I devote much time to giving back to my community and volunteer my time to many community organizations.