Posts Tagged: BancorpSouth Inc.


16
Jun 14

Ruling Raises Stakes for Cyberheist Victims

A Missouri firm that unsuccessfully sued its bank to recover $440,000 stolen in a 2010 cyberheist may now be on the hook to cover the financial institution’s legal fees, an appeals court has ruled. Legal experts say the decision is likely to discourage future victims from pursuing such cases.

Choice Escrow and Land Title LLC sued Tupelo, Miss. based BancorpSouth Inc., after hackers who had stolen the firm’s online banking ID and password used the information to make a single unauthorized wire transfer for $440,000 to a corporate bank account in Cyprus.

BancorpSouth’s most secure option for Internet-based authentication at the time was “dual control,” which required the customer to have one user ID and password to approve a wire transfer and another user ID and password to release the same wire transfer. The other option — if the customer chose not to use choose dual control — required one user ID and password to both approve and release a wire transfer.

Choice Escrow’s lawyers argued that because BancorpSouth allowed wire or funds transfers using two options which were both password-based, its commercial online banking security procedures fell short of 2005 guidance from the Federal Financial Institutions Examination Council (FFIEC), which warned that single-factor authentication as the only control mechanism is inadequate for high-risk transactions involving the movement of funds to other parties.

A trial court was unconvinced, and last week The 8th Circuit Court of Appeals found essentially the same thing, while leaning even more toward the defendants.

“It’s a good opinion for banks [and] it’s definitely more pro-bank than pro-consumer,” said Dan Mitchell, a lawyer who chairs the data security practice at Bernstein Shur in Portland, Maine. “The appellate court found the same thing as the basic court. The customer was offered dual controls — that two people should be required to sign off on all transactions — and they were informed that it was important for them to take advantage of this. So, when [Choice Escrow] made an informed decision in writing not to use dual controls, the bank was careful to document that.”

Perhaps most significantly, Mitchell said, the decision could be a blow to companies trying to recover cyberheist losses from their banks. Bancorp South had asserted at the trial court level that its contract with Choice Escrow indemnified it against paying legal fees in such a dispute. The trial court dismissed that claim, but the appeals court said in its decision that the bank could recover the costs from the escrow firm. Continue reading →


26
Mar 13

Missouri Court Rules Against $440,000 Cyberheist Victim

A Missouri court last week handed a legal defeat to a local escrow firm that sued its financial institution to recover $440,000 stolen in a 2009 cyberheist. The court ruled that the company assumed greater responsibility for the incident because it declined to use a basic security precaution recommended by the bank: requiring two employees to sign off on all transfers.

courthouseSpringfield, Mo. based Choice Escrow and Land Title LLC sued Tupelo, Miss. based BancorpSouth Inc., after hackers who had stolen the firm’s online banking ID and password used the information to make a single unauthorized wire transfer of $440,000 to a corporate bank account in Cyprus.

Choice Escrow alleged that BancorpSouth’s security procedures were not commercially reasonable. Choice pointed out that the bank’s most secure option for Internet-based authentication relied principally on so-called “dual controls,” or requiring business customers to have one user ID and password to approve a wire transfer and another user ID and password to release the same wire transfer.

Choice Escrow’s lawyers argued that because BancorpSouth allowed wire or funds transfers using two options which were both password-based, its commercial online banking security procedures fell short of 2005 guidance from the Federal Financial Institutions Examination Council (FFIEC), which warned that single-factor authentication as the only control mechanism is inadequate for high-risk transactions involving the movement of funds to other parties.

But in a decision handed down on March 18, 2013, a judge with the U.S. District Court for the Western District of Missouri focused on the fact that Choice Escrow was offered and explicitly declined in writing the use of dual controls, thereby allowing the thieves to move money directly out their account using nothing more than a stolen username and password.  The court noted that Choice also declined to set a limit on the amount or number of wire transfers allowed each day (another precaution urged by the bank), and that the transfer amount initiated by the thieves was not unusual for Choice, a company that routinely moved large sums of money.

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26
Jun 12

Bank Settles With Calif. Cyberheist Victim

A California escrow firm that sued its bank last year after losing nearly $400,000 in a 2010 cyberheist has secured a settlement that covers the loss and the company’s attorneys fees. The settlement is notable because such cases typically favor the banks, and litigating them is often prohibitively expensive for small- to mid-sized businesses victimized by these crimes.

In March 2010, organized computer crooks stole $465,000 from Redondo Beach, Calif. based Village View Escrow Inc., sending 26 consecutive wire transfers from Village View’s accounts to 20 individuals around the world who had no legitimate or previous business with the firm. The escrow firm clawed back some of the stolen funds — $72,000 — but that still left Village View with a $393,000 loss, forcing the company’s owner to take out a personal loan at 12 percent interest to cover the loss of customer funds).

In June 2011, Village View sued its financial institutionProfessional Business Bank — arguing that the bank was negligent because it protected customer accounts solely with usernames and passwords. Last week, Village View announced that it had reached a settlement with its bank to recover more than just the full amount of the funds taken from the account plus interest for Village View Escrow.

Kim Dincel, a shareholder at Silicon Valley Law Group, which represented the plaintiffs, said the Uniform Commercial Code and its corresponding California Commercial Code limits the damages resulting from wire transfer fraud to only the actual amount of money lost plus interest – nothing more.  Common law claims such as negligence, breach of contract and fraud, and the damages that attached to them, are generally precluded from being asserted by a victim of wire transfer fraud in a lawsuit involving wire transfer fraud, he added.

“Banks typically deny liability for the cyber-theft which forces small businesses to spend money they do not have on legal fees and regulatory expenses in order to recover a limited and defined set of damages under the Uniform Commercial Code (UCC),” Dincel said in a prepared statement released Monday.

The Bank of Manhattan, which acquired Professional Business Bank last month, did not return calls seeking comment.

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23
Nov 10

Escrow Co. Sues Bank Over $440K Cyber Theft

An escrow firm in Missouri is suing its bank to recover $440,000 that organized cyber thieves stole in an online robbery earlier this year, claiming the bank’s reliance on passwords to secure high-dollar transactions failed to measure up to federal e-banking security guidelines.

The attack against Springfield, Mo. based title insurance provider Choice Escrow and Land Title LLC began late in the afternoon on St. Patrick’s Day, when hackers who had stolen the firm’s online banking ID and password used the information to make a single unauthorized wire transfer for $440,000 to a corporate bank account in Cyprus.

The following day, when Choice Escrow received a notice about the transfer from its financial institution — Tupelo, Miss. based BancorpSouth Inc. — it contacted the bank to dispute the transfer. But by the close of business on March 18, the bank was distancing itself from the incident and its customer, said Jim A. Payne, director of business development for Choice Escrow.

“They said, ‘We’re going to get back to you, we’re working on it’,” Payne said. “What they really were doing is contacting their legal department and figuring out what they were going to say to us. It took them until 5 p.m. to call us back, and they basically said, ‘Sorry, we can’t help you. This is your responsibility.'”

A spokesman for BancorpSouth declined to discuss the bank’s security measures or the specifics of this case, saying the institution does not comment on ongoing litigation.

According to documents filed today with the Circuit Court of Greene County, Mo., BancorpSouth’s most secure option for Internet-based authentication requires the customer to have one user ID and password to approve a wire transfer and another user ID and password to release the same wire transfer. The other option — if the customer waives or does not choose dual control — requires one user ID and password to both approve and release a wire transfer.

Choice Escrow’s lawyers argue that because BancorpSouth allowed wire or funds transfers using two options which were both password-based, its commercial online banking security procedures fell short of 2005 guidance from the Federal Financial Institutions Examination Council (FFIEC), which warned that single-factor authentication as the only control mechanism is inadequate for high-risk transactions involving the movement of funds to other parties.

“BancorpSouth should have, and could have, offered a commercially reasonable multifactor authentication method, since it had ample time (more than four years, October 2005 to March 2010) and knowledge of the need and requirement to provide its customers with secure authentication methods, as evidenced from the numerous documents it received, and/or knew about or should have known about, from the FFIEC and FDIC,” the complaint charges.

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