Posts Tagged: David Navetta


17
Jun 11

Court Favors Small Business in eBanking Fraud Case

Comerica Bank is liable for more than a half a million dollars stolen in a 2009 cyber heist against a small business, a Michigan court ruled. Experts say the decision is likely to spur additional lawsuits from other victims that have been closely watching the case.

Judge Patrick J. Duggan found that Dallas-based Comerica failed to act “in good faith” in January 2009, when it processed almost 100 wire transfers within a few hours from the account of Experi-Metal Inc. (EMI), a custom metals shop based in Sterling Heights, Mich. The transfers that were not recovered amounted to $560,000.

“A bank dealing fairly with its customer, under these circumstances, would have detected and/or stopped the fraudulent wire activity earlier,” Duggan wrote. Judge Duggan has yet to decide how much Comerica will have to pay.

The problems for Experi-Metal started when company controller Keith Maslowski responded to an e-mail that appeared to be from its bank, Comerica. The message said the bank needed to carry out scheduled maintenance on its banking software, and instructed the EMI employee to log in at a Web site that appeared to be Comerica’s online banking site. Maslowski said the email resembled the annual e-mails Comerica used to send, prompting customers to renew EMI’s digital certificates.

The year before the cyber theft, Comerica had switched from using digital certificates to requiring commercial customers to enter a one-time passcode from a security token. The site linked to in the e-mail asked for that code, and Maslowski complied. Within the span of a few hours, the attackers made 97 wire transfers from EMI’s account to bank accounts in China, Estonia, Finland, Russia and Scotland.

Comerica became aware of the fraudulent transfers four hours after the attack began. Although it took steps to isolate Experi-Metal’s account, the bank also failed to stop more than a dozen additional fraudulent transfers from the company’s account after the bank’s initial response. Experi-Metal sued the bank after it refused to cover any of the losses.

Continue reading →


8
Jun 11

Court: Passwords + Secret Questions = ‘Reasonable’ eBanking Security

A closely-watched court battle over how far commercial banks need to go to protect their customers from cyber theft is nearing an end. Experts said the decision recommended by a magistrate last week — if adopted by a U.S. district court in Maine — will make it more difficult for other victim businesses to challenge the effectiveness of security measures employed by their banks.

In May 2009, Sanford, Maine based Patco Construction Co. filed suit against Ocean Bank, a division of Bridgeport, Conn. based People’s United Bank. Pacto used online banking primarily to make weekly payroll payments. Patco said cyber thieves used the ZeuS trojan to steal its online banking credentials, and then heisted $588,000 in batches of fraudulent automated clearing house (ACH) transfers over a period of seven days.

In the weeks following the incident, Ocean Bank managed to block or claw back $243,406 of the fraudulent transfers, leaving Patco with a net loss of $345,445. Because the available funds in Patco’s account were less than the total fraudulent withdrawals, the bank drew $223,237 on Patco’s line of credit to cover the transfers. Patco ended up paying interest on that amount to avoid defaulting on its loans.

Patco sued to recover its losses, arguing in part that Ocean Bank failed to live up to the terms of its contract when it allowed customers to log in to accounts using little more than a user name and password. On May 27, a magistrate recommended that the court make Patco the loser by denying Pacto’s motion for summary judgment and granting the bank’s motion.

David Navetta, a founding partner of the Information Law Group, said that Patco has about another week to dispute the magistrate’s recommendations, but that it is unlikely that the judge overseeing the case will overturn the magistrate’s findings.

Navetta said the magistrate considered the legal issues and propounded an analysis of what constitutes “commercially reasonable” security.

“Many security law commentators, myself included, have long held that reasonable security does not mean bullet-proof security, and that companies need not be at the cutting edge of security to avoid liability,” Navetta said. “The court explicitly recognizes this concept, and I think that is a good thing.”

But Avivah Litan, a fraud and bank security analyst at Gartner, took strong exception to the way the magistrate arrived at the recommended decision, calling it “an outrage.”

“In my opinion, this is frankly an egregious injustice against small U.S. businesses,” Litan said. “It is also a complete failure of the bank regulatory system in the United States, which should come as no surprise, given the history of the regulators in the 21st century.”

Continue reading →


19
Jan 11

Experi-Metal vs. Comerica Case Heads to Trial

A lawsuit headed to court this week over the 2009 cyber theft of more than a half-million dollars from a small metals shop in Michigan could help draw brighter lines on how far banks need to go to protect their business customers from account takeovers and fraud.

The case is being closely watched by a number of small to mid-sized organizations that have lost millions to cyber thieves and have been waiting for some sign that courts might be willing to force banks to assume at least some of those losses.

Nearly two years ago, cyber crooks stole more than $560,000 from Sterling Heights, Mich. based Experi-Metal Inc. (EMI), sending the money to co-conspirators in a half-dozen countries.

Continue reading →