US Law Firms Targeted By Cyberscams

Hugh Pickens writes "The San Francisco Chronicle reports that last year a Long Beach law firm received an e-mail from a Hong Kong businessman seeking help collecting debts from American customers. After a month of signing paperwork and exchanging telephone calls, the attorney received word that one debtor had sent a $200,000 cashier's check to pay off his balance. The attorney deposited it in his firm's account, subtracted his $10,000 fee and wired the remaining $190,000 to his Hong Kong client. Then the attorney's bank called and told him the $200,000 check had bounced. 'They send me a nice, big, worthless check,' says the attorney. In this case, the bank was able to prevent the wire transfer from reaching its destination, but attorneys say they are on the receiving end of sophisticated scams with increasing frequency that include attacks to steal client data that can be sold or used to learn the details of future litigation."

Comments

Well...

[santax]

Your a lawyer.... go sue 'em boy!

Re:Well...

[Bigjeff5]

I don't know if you understand how checks work, but they do take a little time to clear (i.e. for the money to be transferred from the issuer's bank to the receiver's bank). It's a hell of a lot faster than it used to be, but it still takes time.

If the check was generated in the same city then it will only take a few seconds to a few minutes to clear. Checks generated outside your region might take an hour or two, but it can take up to several days for these checks to clear. International checks and cashier's checks can take up to a month to clear. Do you realize the economic impact there would be if banks withheld cash for a month waiting for a check to clear? It would be insane, the damage done to the economy would be far worse than the damage done by fraudsters. Your response is a typical over-reaction to fraud. Because of the way checks work, if a check bounces the bank has the right to pull that money back - that way the fraudster screwed you over, not the bank.

In this case I'm guessing it only took a day or two at most, because the wire transfer was still in-progress to his Hong-Kong bank when the check bounced.

Go rent the movie "Catch Me If You Can", it's a very entertaining movie based on the life story of Frank Abignali - one of the most famous check fraudsters of all time. They do a very good job explaining how checks work and how a guy can run off with loads of cash if his fake check passes initial muster.

Re:Well...

[Gorobei]

So then there comes this question - why didn't they check if the check bounced before they wired back the excess?

Because retail banking is based on medieval rules. A check can bounce weeks after the fact: it's just a promise that X will pay $Y, not a real financial instrument that generically pays $Y.

The US has banking laws that require banks to make deposited funds available to you after N days, but that is NOT the same as you actually having completed the underlying transaction: unwinds happen, the money is removed from your account, and you are back at square one, possibly with a fee to boot.

Re:Well...

[sjames]

There is still a substantial impact from banks being allowed to unwind a transaction at their leisure. In the day and age when people can download a newly released movie from halfway around the world and have it on a DVD before it hits the store shelves (and occasionally before it even hits a public theater screen), there is no good excuse for not being able to say once and for all if a check is good or not within 24 hours.

There is no reason to accommodate the long gone need to send checks to the main branch via stagecoach and hear back a week or two later in the modern age. Banks should be required to verify and reserve the funds within a very short time and should at that point be unable to pull it back. If they are unwilling to join us here in the 21st century, let them assume the risks. So far, the only 19th century trappings they have cast off is their air of respectability and their drive to avoid any behavior that even looks like it might be improper. By charging more and more for less and less, they are becoming a big drag on the economy (which they have recently wrecked with little consequence to themselves).

Re:Well...

[jareds]

The solution is to receive payment via ACH debit. This means you initiate (with their written permission, make sure you have the signed docs for this) the withdrawal of funds from their account. Once you get the funds, you're in the clear... they cannot be recalled by the other party, and you did not need to give them your account details.

Are you serious???! An ACH transaction can be reversed up to 60 days after the next bank statement, if the customer reports it as an unauthorized electronic transfer. This is as it should be, since an account number is not a proof of identity. In theory, if you can show that the actual account holder did authorize the transaction, you're fine, but even in the best possible case the verification is all on you. Of course, in a case like the check case in the article where the business was transacted by mail, anyone can send you a bunch of phony authorization paperwork that isn't going to mean jack.

Also been a problem for regular people

[Kjella]

Classic scam:
1, Scammer pretends to be a buyer for some fairly expensive product, e.g. a car
2. Scammer sends false cashier's check to client
3. Scammer asks to cancel the deal because of some crisis, offers to cover any expenses he's had and a compensation for wasting their time
4. Many people will have compassion for their situation and agree to undo the sale
5. They wire the reminder - maybe 90% of the purchase price - back
6. The check sent in #2 bounces, the money returned in #5 gone and they're out a ton of money
7. Profit, for the scammer. No ??? here.

Re:Also been a problem for regular people

[WrongSizeGlass]

Mod parent up for successfully combining a car analogy and a 'Profit!'. If they'd included a Linux reference they would have earned the coveted Slashdot Hat Trick.

Re:Also been a problem for regular people

[Kjella]

A check? Really? On first buy? WTF? If someone new buys from me, he pays 100% upfront, or he can GTFO.

Which they also warn you against, because people take the money and disappear never to deliver. Nothing is really secure unless you have an escrow service that makes sure both the funds and the goods are transferred as intended, otherwise somebody has to trust somebody. In fact that's how professional second hand ebayers essentially make their business, they have the reputation that people feel comfortable selling to them knowing they'll get their cash and the reputation to feel comfortable buying from them knowing they'll get their product. I would never send 100% up front to a first time seller, but I guess some people are more risk-taking than me as it seems first time buyers and sellers do it all the time.

How About ...

[WrongSizeGlass]

... no one sends anyone else any money until they verify that the check they've received is good?

The first time I get payment from a client I always wait to see if it clears before moving forward on a project. It's one of the reasons we require deposits before starting work.

Re:How About ...

[Jah-Wren Ryel]

The first time I get payment from a client I always wait to see if it clears before moving forward on a project.

You should know then that checks never clear. They just fail to bounce. That may not seem like much of a distinction but it is precisely the reason many of these frauds work. In the US the law specifies a maximum hold time on deposits before the bank must make funds available to you. So, as long as the check fails to bounce during that period of time the fraudster usually gets away with their scam. But eventually it does bounce, and that's when the bank comes back to the person who made the deposit and they take their money back - if there isn't enough cash in his account, they sue him for the difference.

I know a guy who was scammed out of an exotic car - the 'buyer' gave him a bogus cashiers check. His bank took nearly three weeks before notifying him that they were "having difficulties" processing the check. By then, the car was half way across the country and had already been resold to a used-car dealer. FWIW, his car insurance eventually paid out because the car was essentially stolen, albeit through fraud rather than the more common ways.

Re:How About ...

[Antique Geekmeister]

He did wait. His bank reported it as valid, and only after that did he send along the $190,000 to his client. Then the first check was bounced, _after_ his bank reported it valid. That's the root of a whole set of fiscal scams going on right now, the fact that banks report checks as "valid" that can still be voided by a malicisious check user after that point.

Re:How About ...

[ZorinLynx]

Hmm, the solution to this problems seems obvious.

Once a bank tells you that a check you deposited is valid, the bank is now liable for that deposit. If the check ends up being fraudulent in this case, the bank is out the $200,000, not the customer who deposited it.

If we change the law so this is the case, banks will be a lot more thorough about checking the validity of deposited checks. Trust me. :)

Re:How About ...

[Registered Coward v2]

Hmm, the solution to this problems seems obvious.

Once a bank tells you that a check you deposited is valid, the bank is now liable for that deposit. If the check ends up being fraudulent in this case, the bank is out the $200,000, not the customer who deposited it.

If we change the law so this is the case, banks will be a lot more thorough about checking the validity of deposited checks. Trust me. :)

Except the bank probably only released the funds; they didn't say the check was good. Many US banks will release funds before the check is eventually discovered to be good; people unfortunately think the check is good and that's the root of the scam.

Re:How About ...

[aaarrrgggh]

Even if thr check is good, there are other scams involving money laundering, et al. The money is confirmed one day as an ACH transfer, but later reversed by the authorities or frozen.

Re:How About ...

[BigSlowTarget]

Of course even more refuse to release funds even though they know the check is good. They will not hesitate to put a two week hold on a check and keep it there even if the correspondent bank has removed the funds from the drawing account and credited the bank where the check was deposited after a single day.

That being said, there are very specific rules about how long each type of check can be held. Cashier's checks are subject to short times because it is assumed that one bank can tell if another bank's check is bad. After all, it really only takes a phone call and typing a few numbers into a computer to find out if the a bank issued the check. It is poor systems, incompetence and weak international interfaces that make this kind of thing possible.

Oh and as for changing the rules forget it. The banks have more money, motivation and personal influence with the government than you ever will. Even minor unfavorable changes to their governing laws are now only possible for a brief period in the wake of the recent record breaking financial collapse and scandal. They will be this way until well after you are dead and gone.

Re:How About ...

[Bigjeff5]

No, he didn't wait.

Banks will go ahead and transfer money into the depositor's account before the cashier's check clears if the check appears to be valid (i.e. is not obviously counterfeit), because 99.99% of the time they do clear and it's just efficient business.

You can, however, request a hold on the check and have the bank wait until the check actually clears before the bank transfers the money to your account. If you've never done business with an individual who is issuing you a $200k check, a hold is just plain smart.

All you have to do is say "And as soon as the check clears, we can wrap this up!" Your ass is now covered, and you are 100% guaranteed not to be screwed out of your money. That's what makes cashier's checks so great, as long as the check is legitimate it will not bounce. Only a counterfeit or stolen cashier's check will bounce. The same is not true for personal or business checks, which may have insufficient funds, or credit cards which may be stolen.

If you are willing to wait for the check to clear, cashier's checks are the safest form of money transfer. They are like a slow version of bank-to-bank wire transfers.

Re:How About ...

[Bigjeff5]

If we change the law so this is the case, banks will be a lot more thorough about checking the validity of deposited checks. Trust me. :)

Since 99.99% of cashier's checks clear, you will end up harming the economy far more than you protect it, because banks will start withholding otherwise valid transfers for up to 30 days while the checks clear. Frankly, that would be devastating for the flow of business.

What you suggest is a naive over-reaction to a problem that can be correct with just a little care on the part of individuals receiving cashier's checks. The system in place already works great, and instead of shoving your opinion down everyone's through it gives businesses the option of taking a risk for a greater potential reward. Furthermore, if you've verified the person giving you the check, either by past business or other means, there is absolutely no reason not to trust the cashier's check. Period. Only initial, untrusted transactions should be held, and it should be the business's responsibility to protect themselves, not the bank's.

It's the same kind of naive over-reaction that has us taking off our shoes in airports because one guy tried and failed to bring down an airplane with a bomb in his shoes. The next guy just snuck the bomb in by hiding it in his underwear, what did taking off our shoes accomplish? Just heartache and humiliation for frequent fliers, that's all. Are we now going to have to start taking off our underwear and sending it through the airport scanner?

Re:How About ...

[Registered Coward v2]

So how does a person determine that a check is _actually_ good, so they can avoid these problems?

The only way I know of is to present the check to the issuing bank to cash it and the bank / company have a positive pay agreement; even then I'm not sure if that fully protects you. Probably the best bet is to take the check to a bank manager and get their input on what to do to ensure you don't get stuck; of course too good to be true deals or ones that just don't feel right are a tip off as well. For example, if you get a check for too much offer to return it for correction; a fraudster would come up with reason why not to send it or simply drop you.

Re:Obvious answer...

[putaro]

And so you too would have gotten taken by this scam. They received a cashier's check (aka bank cheque) and their bank accepted it. They, like you, believed that an accepted bank cheque was as good as cash so they wired the refund (which, FYI, is the same as cash, since you can't take it back) and got stuck.

Re:So, why expose yourself like that?

[Jenming]

Instant wire transfers aren't really instant. Like in the example above. The lawyers sent a wire transfer, the check then bounced and the bank was still able to stop the wired money from reaching the scammers.

I bet the wire transfer showed up in the scammers account instantly, however the money lags that information in much the same way cashing a check works.

I must be a bad person...

[ibsteve2u]

The combination of debt collector and lawyer seems to have removed my ability to sympathize.

Re:Lawyer is stupid

[tuomoks]

Doesn't help in US and maybe in some other countries - in most countries it would then be the banks problem / loss but I digress. I have had the transactions reversed after 3-4 weeks in US banks because they (the clearing house - what a joke!) failed in process! One reason not to use the US banks for small transactions - big / enterprise / government transactions are handled differently. $200K is not big, by the way.

Late news and less salacious

[dpille]

The American Bar Association reported on this mere 17 months ago. I think it's less remarkable that some California firm got bilked as much as they got swindled while ignorant of a direct warning from their prime industry trade journal.

A more compelling version of the scam, to me, is overpayment of retainer fees as a new client. Fortunately, only idiot California firms are vulnerable as the ABA has warned about this variation as well. Interestingly, though, the tab appears to have been $500K in that one.

Or simply a better money transfer system

[Sycraft-fu]

Checks are outdated, and because of their age combined with the new technology of today, scammers are able to effectively use them for scams like this. However, people don't have a lot of choice but to use checks. For the individual, there's not really any way to effectively and cheaply transfer money.

We need a new money transfer system for individuals, something along the line of the ACH that businesses use (if you auto pay bills, that's how they are transferred). Something where when the transfer is authorized there's a secure system for checking that the money is available and will be sent, and verifies the identities on both ends.

The problem you could end up with simply making banks responsible is that it would just slow things down a whole lot. So you tell the bank "You are responsible for any bad checks." The bank says "Ok, no problem." Then, you deposit a rent check from your roommate. It doesn't show up in your account the next day, nor the next week, nor the week after. You call and ask what is going on and they tell you that they are waiting on the transaction to finalize. More or less they'd have to take the check, clear it internally, send it back to the originating bank, wait for the funds to clear through the fed wire, and then perhaps hold them if there was additional time the originating bank could cancel.

We just need a better system. All the technology exists, the problem is just costs/availability. We need a system that is available individuals, but that doesn't cost too much. Something like PayPal works for individuals but costs too much. You aren't going to accept a 3% cut out of rent each month. ACH works well and doesn't cost much, but isn't available to individuals, just for large batch type transactions. We need something where I can specify you will get money, you can verify this is legit and the transfer is going through, and the cost per transaction is very low.

Re:Or simply a better money transfer system

[pesho]

The problem is not exactly 'cost/availability'. It is more like 'greed/stupidity'. Such system exist and functions perfectly well in Europe, even in the somewhat more backward eastern parts. It is free or the costs are negligible for the typical consumer. All you need to do is know the IBAN of the other account and you can safely, quickly and cheaply transfer money. And this is not something that just happen. It has been in place for decades.

In the US banks want to charge you for any absurd thing that comes to their mind. As a results we are stuck with an incredibly slow, inefficient and insecure way to transfer money (writing numbers on paper). There is no way that check processing is cheaper that wire transfer. Here are two examples of how absurd wire transfers in the US can be:

1. I have accounts in banks A (checking) and B (brokerage). If I go to bank A and tell them to transfer money to bank B, they will charge me $15. If I go to bank B and tell them to transfer the money _from_ bank A it is free.

2. I want to transfer money to Europe. My bank will charge me $35 and send the money. The bank on the other side will withhold their own fee (because the US bank is not part of the IBAN system) and put the rest in the account. While I know the US bank fee there is no way to know the fee on the other side, even my bank claims there is know way the can find this out. As a result putting exact sum of money into a bank account which should be the simplest thing to do is absolutely impossible.

Re:Or simply a better money transfer system

[dgatwood]

Odds are, that $15 transfer charge is for a wire transfer, while the free transfer is via ACH. ACH transfers are almost always free; wire transfers are almost always pricey.

Re:WTF is "cashier's check" ??

[Compaqt]

A cashier's check is a check issued by a bank.

The party doing the paying is the bank, not you. For this reason, it's considered more secure than a personal check.

If you pay by cashier's check the money has already been debited from your account. There's no possibility that you'll give a check, receive merchandise, and then empty your account before the seller has a chance to deposit the check.

Other names for cashier's check are:
-bank draft
-demand draft
-banker's draft

This scam has been tried on me for years.

[alex_guy_CA]

I'm a wedding photographer. We call this one the pay forwarding scam.

It starts with an email from a potential "client." They say they want to book you from overseas. Offer to send you a check, send a check for more than your fees, and ask you to pay for the invitation printer (or whatever) for them.

On my end, more small potatoes then the case ITA, this scam is easy to spot. The people don't act like a real wedding client, they don't want to talk on the phone, they don't know how to discuss wedding packages, they make have bad grammar etc... You can spot this long before they get to the ask.

For a long time, as soon as I had two or more tale-tale signs, I would quit the conversation. Then I got a PO Box. Now, I drag it on as long as possible (unless I'm extra busy that week). I like to see the look of the fake checks, and I like to waste their time.

"Sophisticated"?

[The Angry Mick]

How many stories of Nigerian scams have we seen in the press over the years? Just because a lawyer fell for one, the scams have suddenly become "sophisticated"?

Methinks the victim has a higher opinion of his intelligence than reality has demonstrated.