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Client Alert: Business E-mail Compromise (BCE)

By Bernkopf Goodman on 11.12.2018
Posted In: Client Alerts
Over the past few years, there has been an escalating financial cyber threat called Business E-mail Compromise (BCE), often referred to as the “Man in the E-mail Scam”. In essence, the scammer hacks into a lawyer’s e-mail account, monitors communications, and then, at the opportune time, sends a bogus e-mail (from a similar e-mail address) to opposing counsel requesting an immediate wire transfer or a change in wire instructions. If the recipient does not realize the e-mail is bogus, and the funds are wired, the money is extremely hard to recover even after just a day or two.

Bernkopf Goodman LLP has handled several of these matters and is currently handling litigation involving a BCE where we recently prevailed on a motion to dismiss claims against an insured owner. In essence, the closing attorney represented both the bank and the buyer, both of whom obtained title insurance policies. In the ordinary course, the closing attorney received the deed from seller and purchase funds from the bank/buyer. A bogus e-mail was then sent to the closing attorney requesting that he stop payment on his IOLTA check and instead wire the funds. The closing attorney stopped payment on his IOLTA check and wired the funds as instructed by the scammer posing as the seller’s counsel. When the seller received notice that the IOLTA check had a stop payment and notified the closing attorney, the scam was discovered and the majority of the funds were gone. The seller then sued the closing attorney and the buyer.

Our firm filed a motion to dismiss the claims against the insured owner asserting that her contractual obligations under the Purchase and Sale Agreement, and in connection with the closing, were complete once the funds were paid to the closing attorney who was acting as escrow agent. Although there was no written escrow agreement, the Court agreed with the analysis that the closing attorney was an escrow agent owing a fiduciary duty to both seller and buyer. The Court agreed that the transaction was complete as between buyer and seller once they had tendered everything they were required to tender to the escrow agent, and concluded that the insured owner was not liable for any acts of the closing attorney. As such, title remains with the insured owner and the seller’s claims against her have been dismissed. The attached opinion may prove helpful in defending against such title claims in the future as there is little reported case law, and is also a cautionary tale for all businesses. As a side note, the Court also award summary judgment to the seller on its claim against the closing attorney. The decisions are still subject to appeal. If you have any questions or need further information, please do not hesitate to call Jason Manekas (617-790-3308) or Jim Fox (617-790-3310).

Memorandum_of_Decision_and_Order_on_Motion_to_Dismiss.pdf