“Business Email Compromise Fraud: Should the Party Best Positioned to Avoid the Fraud Bear the Loss?” FinTech Weekly

AGG Payments Systems & Fintech attorneys Ed Marshall and Morgan Harrison authored an article for FinTech Weekly discussing who bears the loss in a business email compromise case.

Business email compromise (“BEC”) typically occurs when the business email account of a payee is compromised or impersonated. The threat actor, posing as the payee or its representative, will send alternative wire or ACH instructions to the payor, causing the payor to direct a payment to an account not associated with the intended payee.

Two conflicting approaches for who should bear the loss in these cases have emerged. The imposter rules had been used in many BEC context cases as it establishes that the side that was best positioned to prevent the fraud bears the fault for the loss. Alternatively, the court in Peeples v. Carolina Container, LLC, went against the standard of the imposter ruled and determined that the payor was responsible for the loss as outlined in the contract liability agreement they had signed when arranging the transaction.

“As the Peeples court acknowledged, the lack of directly applicable authority on which party bears the loss when funds have been fraudulently diverted leaves space for ‘creative lawyering’ and a host of potential conceptual frameworks for resolving such disputes,” explained Ed and Morgan. “At present, though, using the imposter rule appears to be the preferred approach by courts that have had the unenviable task of allocating the loss among parties wronged by a third-party criminal actor in a BEC scheme.”

To read the full article, please click here.