Window to the Law: Avoiding Wire Fraud in Transactions

Window to the Law: Avoiding Wire Fraud in Transactions — Transcript

As our reliance on technology grows, cybersecurity is becoming more critical.  Last year, after a series of major cyberattacks, the White House issued an executive order declaring cybersecurity a national priority.  In 2021, the FBI reported that cybercrimes caused more than $350 million dollars of loss in the real estate sector.  This represents more than a 64% increase from 2020.  Many of these losses were caused by wire fraud.  As real estate professionals, you must know the serious threat wire fraud poses, and consider implementing the best practices discussed in this video to protect against the liability and devastation caused by this fraud.

With real estate transactions typically involving large financial transactions, real estate is an attractive target for cybercriminals to steal large sums of money. Wire fraud usually involves a cybercriminal compromising a business or personal email account and sending the buyer or another party, in the last minute, a convincing yet fraudulent instructions to wire money to the wrong account.  According to the FBI these schemes are evolving.  For instance, cybercriminals are now exploiting virtual meeting platforms.  The hackers will break into an executive’s email account and invite an employee to a virtual meeting.  The fraudster will use a still picture, claim to have audio and video issues, and then direct the employee to initiate a fraudulent wire transfer.  Falling for a wire fraud scheme can be a costly mistake.

For example, a US District Court in New Jersey ruled against a title agency company that was defrauded by a wire fraud scheme.  The title company was the closing agent for the sale of a residential property.  An employee deviated from company protocol and didn’t confirm the wire instructions sent by email and mistakenly wired funds to a fraudulent account. Upon discovering its error, the title company filed a claim against its professional liability policy.  The insurance company denied coverage pointing to a policy provision that excluded damages from wire fraud.  The parties litigated the matter, and the court ruled against the title company, costing the title agency company hundreds of thousands of dollars. 

As you can see, wire fraud is a constant threat in causing significant financial and reputational damage.

Consider these best practices to protect yourself and clients from wire fraud schemes:

1. Educate your clients and staff about how to combat wire fraud scams by providing them information and tips.
2. Instruct clients to always verify wire instructions either in person or through a call to a trusted phone number.
3. Practice email hygiene, using strong passwords and monitoring for suspicious activity.
4. Include a wire fraud notice in your email signature informing recipients about wire fraud.
5. Lastly, review your E&O and cyber liability policies and ensure sufficient coverage in the event of cyber incident.

Thank you for watching this episode of Window to the Law.