Recent Texas Case Illustrates Need for Increased Caution in Wire Transactions
Texas Benchellal Case Applies Imposter Rule in Wire Fraud Case
A recent Texas case, Benchellal v. The Okonite Co., Inc., No. 4:22-CV-04435 (S.D. Tex. Mar. 11, 2024), illustrates the need for parties sending monies to be especially careful in confirming payment instructions.
Benchellal Case Questions: Who is in Best Position to Prevent the Fraud?
In Benchellal, a fraudster provided alternate wiring instructions for a fund transaction via email. Notwithstanding the fact that the intended recipient had informed the sender that they always use Bank of America, the sender nonetheless sent money to a fraudulent Citibank account based on the fraudulent e-mail. The Court found that the sender had no recourse against the recipient, stating that:
“The undisputed evidence in this case demonstrates that Benchellal [sender] received conflicting wire instructions and instead of calling to confirm the correct instructions, asked for confirmation from a fraudulent email address and then wired the funds to a fraudulent account. Plaintiffs have presented no evidence demonstrating that Okonite [recipient] was in the better position to prevent Benchellal [sender] from falling victim to the scam.”
All of this could have been avoided had the sender merely picked up the phone and confirmed the bank instructions (a form of multi-factor authentication “MFA”).
Court in Benchellal Case Applies Imposter Rule
The court found persuasive a Florida case, Arrow Truck Sales, Inc. v. Top Quality Truck & Equip., Inc., No. 8:14-CV-2052-T-30TGW, 2015 WL 4936272 (M.D. Fla. Aug. 18, 2015) where the court used the “imposter rule” to find that the person who was in the best position to stop the fraud had an obligation to do so. Under the “imposter rule,” the party who was in the best position to prevent the forgery by exercising reasonable care suffers the loss. See, e.g. UCC § 3-404(d); State Sec. Check Cashing, Inc. v. Am. Gen. Fin. Servs., 972 A.2d 882 (Md. App. 2009).
Key Takeaways from the Benchellal Case
When handling money transfers via wire transactions, the sender should exercise reasonable care to:
identify requests that have altered instructions; and
take cautionary steps to ensure the request is legitimate by validating the information through independent means.
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