Is Everyone on the Hook for Wire Fraud?

August 23, 2018

A white paper released by identity management company CertifID, analyzed a recent court ruling that heightened the standard of care owed by transaction participants to prevent wire fraud losses.

According to the white paper “Wire Fraud Is Everyone’s Problem” written by CertifID founder and CEO Thomas Cronkright II, the ruling in Bain v. Platinum Realty LLC et al. means that anyone—including title agents, underwriters and mortgage lenders—involved in a real estate transaction may be held liable where fraud occurs, regardless of the relationship between the parties.

The jury in the Bain case found a real estate agent and her broker jointly and severally liable for 85 percent of losses incurred by a buyer when the buyer was tricked into wiring funds to a fraudulent account in connection with a real estate transaction. Based on the pleadings and motions filed with the court, the real estate agent’s email account was compromised by cyber fraudsters who used the account access to send fraudulent wiring instructions to the buyer. The buyer trusted the wiring instructions because they were sent directly from the agent’s email account and contained information relevant to the upcoming real estate closing. The jury found the agent and her broker liable for negligent misrepresentation and ordered both of them to pay $167,129.27. Importantly, there was no direct tie between the buyer and the agent or the broker, as the agent and broker in this case, represented the seller. The buyer was an experienced real estate investor that was unrepresented. 

“The moral of the story appears to be that, no matter your role in the real estate transaction, you have a duty to take reasonable steps against cyber fraud,” Cronkright said. “Title companies, loan officers, attorneys or financial institutions … this ruling sends a strong signal that we’re all responsible to guard against cybercrime and wire fraud.”

Cronkright said the case appears to expand the duty of care in two ways. First, participants may be held jointly and severally liable for losses due to cybercrime if their email, systems or information is compromised.  Secondly, the standard of care may expand to all parties in a transaction regardless of direct contract or fiduciary relationships between them. 


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