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Fraud Stories

Distributorship Victimized by Check Fraud
The Feb. 1, 2002 edition of DMIA's E-Weekly Newsletter reported on a distributorship that had been victimized by check fraud. The case was unusual because of the sophistication of the forgery. Criminals forged a check for $92,358 with the distributorship's name, logo and account information as well as its president's signature. The check was deposited into an account at a New York bank, then most of the money was wired to Nigeria.

A week prior to that forgery, the distributorship stopped another fraudulent check for $119,102.89 before it could be processed. (The distributorship was unaware that the $92,358 fraudulent check had been processed previously.) The company received a call from a computer hard drive manufacturing firm in Massachusetts saying that it had received a check in the distributorship's name as payment for $119,102.89 in equipment for a Nigerian company. The manufacturing firm already had called the distributorship's bank to ensure the funds were available, but still was reluctant to ship the equipment. The manufacturing firm's owner thought it was strange that a business in the United States would pay for equipment for a Nigerian company, the distributor says. "We were able to stop this check within two hours of it being processed at our bank," he says. According to the distributor, the crooks most likely had planned to sell the equipment on the black market.

The fraudulent checks were printed on chemical-reactive paper that included artificial watermarks, Toner Grip™ and fluorescent fibers. They also included MICR numbering and microprinting. In fact, the fraudulent checks were almost identical to the distributorship's own checks--the fake signatures even looked like his own, the distributor says.

After closing his company's checking account, the distributor immediately contacted his attorney and the authorities. (Crooks tried to cash two more checks for approximately $70,000 and $30,000 after the account was closed.)

The FBI, U.S. Secret Service and the distributorship's local police investigated and found the fraud was committed by a Nigerian crime ring that operates worldwide. One member of the crime ring, who operated in the distributorship's area, worked as a driver for a bank's courier service. He stole one of the distributorship's accounts payable checks from a lock box the bank had set up for a printing manufacturer. After scanning the check, the crook created new ones with the distributorship's name, address and logo, as well as its president's signature. They were printed on check stock purchased from an office supply store. To ensure the checks would clear, the individual also carefully numbered the checks much higher than the authentic check.

The crook then sent the checks to another member of the crime ring in New York. Offering a variety of excuses for why he was unable to deposit the check himself, that person convinced a trusting elderly couple to deposit the $92,358 check into their bank account, then immediately wire $87,358 to Nigeria. The couple was allowed to retain $5,000 for their help.

After trying to recoup its financial losses from its bank for more than 1 1/2 years, the distributorship settled with the bank Aug. 21 for $45,000. According to the bank's insurance company, the bank wasn't liable for the loss because the distributorship's president used a rubber stamp to sign company checks at the time the fraud occurred. The insurance company says the bank isn't responsible for fraudulent checks processed with facsimile signatures, including ones signed with rubber stamps or mechanical devices. When the distributorship opened its bank account, the company's president signed a signature card and authorized the bank to accept checks with facsimile signatures. The back of the card included a legal agreement that said the bank wasn't responsible for checks fraudulently drawn with facsimile signatures. But the distributorship's lawyer argued that that agreement protects banks only when signature stamps or other facsimile signature devices are stolen, not when checks are stolen, then reproduced.

Since the fraud occurred, the distributorship has pulled most of its business from the bank. "What's really frustrating is I've known the vice president of the bank for 12 years," the distributor says. "I tried to sit down with him and talk through this and say, 'Look, we're both losing out on this deal. Can't we come up with something that would be agreeable to both of us?' His position was, 'It's been handed over to the attorneys now, so all communication has to go through them.' It's unfortunate it had to end up this way."

The distributorship's new checks are loaded with security features, including a graduated color pattern, invisible and visible fibers, void pantographs, chemical reactive paper and thermochromic ink. The company also implemented additional security measures: Only two people within the firm can sign checks, and the distributorship's bank must verify checks written for more than a set dollar amount. Yet, the distributor still worries about the potential for fraud. "I've tried to do everything I possibly can to protect myself," he says. "I think I've gone beyond 'ordinary care.'"

IMPACT TO DEFRAUDED BUSINESS:
Lost use of $92,358 of funds for over 24 months
$45,000 of Recovered Funds
$-47,358 Lost Funds Not Recoverable plus Legal Costs

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