Posts Tagged: Patco


19
Apr 13

Bank Sues Cyberheist Victim to Recover Funds

A bank that gave a business customer a short term loan to cover $336,000 stolen in a 2012 cyberheist is now suing that customer to recover the fronted funds, after the victim company refused to repay or even acknowledge the loan.

robotrobkbOn May 9, 2012, cyber crooks hit Wallace & Pittman PLLC, a Charlotte, N.C. based law firm that specializes in handling escrow and other real-estate legal services. The firm had just finished a real estate closing that morning, initiating a wire of $386,600.61 to a bank in Virginia Beach, Virginia. Hours later, the thieves put through their own fraudulent wire transfer, for exactly $50,000 less.

At around 3 p.m. that day, the firm’s bank — Charlotte, N.C. based Park Sterling Bank (PSB)– received a wire transfer order from the law firm for $336,600.61. According to the bank, the request was sent using the firm’s legitimate user name, password, PIN code, and challenge/response questions. PSB processed the wire transfer, which was sent to an intermediary bank — JP Morgan Chase in New York City — before being forwarded on to a bank in Moscow.

Later that day, after the law firm received an electronic confirmation of the wire transfer, the firm called the bank to say the wire transfer was unauthorized, and that there had been an electronic intrusion into the  firm’s computers that resulted in the installation of an unspecified strain of keystroke-logging malware. The law firm believes the malware was embedded in a phishing email made to look like it was sent by the National Automated Clearing House Association (NACHA), a legitimate network for a wide variety of financial transactions in the United States.

As some banks do in such cases, Park Sterling provided a provisional credit to the firm for the amount of the fraudulent transfer so that it would avoid an overdraft of its trust account (money that it was holding for a real estate client)  and to allow a period of time for the possible return of the wire transfer funds. PSB said it informed Wallace & Pittman that the credit would need to be repaid by the end of that month.

But on May 30, 2012 — the day before the bank was set to debit the loan amount against the firm’s trust account — Wallace & Pittman filed a complaint against the bank in court, and obtained a temporary restraining order that prevented the bank from debiting any money from its accounts. The next month, the law firm drained all funds from all three of its accounts at the bank, and the complaint against the bank was dismissed.

Park Sterling Bank is now suing its former client, seeking repayment of the loan, plus interest. Wallace & Pittman declined to comment on the ongoing litigation, but in their response to PSB’s claims, the defendants claim that at no time prior to the return of the funds did the bank specify that it was providing a provisional credit in the amount of the fraudulent transfer. Wallace & Pittman said the bank didn’t start calling it a provisional credit until nearly 10 days after it credited the law firm’s account; to backstop its claim, the firm produced an online ledger transaction that purports to show that the return of $336,600.61 to the firm’s accounts was initially classified as a “reverse previous wire entry.”

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8
Aug 11

Judge Nixes Patco’s eBanking Fraud Case

A district court judge in Maine last week approved a pending decision that commercial banks which protect accounts with little more than passwords and secret questions are in compliance with federal online banking security guidelines.

Sanford, Maine based Patco Construction sued Ocean Bank in 2009, alleging poor security after a $588,000 cyber heist. Patco sued to recover its losses, arguing in part that the 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 Patco’s motion for summary judgment and granting the bank’s motion.

On Thursday, the judge presiding over the lawsuit affirmed that recommended decision (PDF), ruling that no further proceedings were necessary. Patco’s attorney Dan Mitchell said the company has 30 days to file an appeal, but that it hasn’t yet decided whether to challenge the decision. Continue reading →