Recovering Losses from Banking Fraud

We have handled numerous claims involving the misappropriation and diversion of funds from the bank accounts of corporate and individual clients.  Michael J. Betts has many years of experience in private practice handling litigation involving banks, and he previously served as senior litigation counsel for a large retail bank handling numerous account-related fraud claims. The types of banking fraud claims that we handle include:

Forged or Altered Checks

Articles 3 and 4 of the Uniform Commercial Code determine which party must bear the loss in most of these cases.  A check that is drawn on the bank account of an entity or individual must be honored by the customer’s bank (the “payor bank”) if - and only if - the check is “properly payable” under UCC Section 4-401(a). In many cases, checks that have been forged or altered are not “properly payable” and if they are paid the customer may have a claim against the bank for releasing the funds from the account.  There are time limitations for asserting claims based on forged or altered checks, based on provisions of the UCC and/or the customer’s account agreement, so if fraud is suspected the customer should notify the bank promptly and diligently pursue his or her rights through legal counsel.

Fraudulently Induced Wire Transfers

Businesses and individuals are more and more frequently the victims of fraud, through wire transfers and ACH payments that they are fraudulently induced to make. This type of fraud can take various forms, including in connection with investment scams, real estate transactions, bogus notifications concerning supposed account-related issues and overpayment schemes. A number of these scams are highlighted in consumer alerts published on the Federal Trade Commission’s website. The FTC has also published a helpful article entitled “What to Know Before You Wire Money.” 

A complex web of federal and state statutes governs most of these cases and determines the allocation of risk of loss among the parties.  Article 4A of the Uniform Commercial Code generally governs the allocation of loss in connection with fraudulently induced wire transfers.  Article 4A has been adopted in all states.  As enacted in Pennsylvania, UCC Article 4A is found at 13 Pa.C.S. section 4401, et seq.  Many of the the legal principles applicable to fraudulent wire transfers were discussed by the Honorable Nora Barry Fischer in her scholarly opinion issued in September 2024 in the case of Elkin Valley Baptist Church v. PNC Bank, N.A., No. 23-1798 (W.D. Pa.).

Fraudulent ACH, ATM and Debit Card Transactions

These claims are generally governed by the federal Electronic Fund Transfer Act (EFTA), which has been in effect since 1978, and Regulation E issued by the Federal Reserve. Fraudulent fund transfers using the Automated Clearing House (ACH) Network have become more and more common, as criminals have devised ways to gain access to a business’s or individual’s banking information. ACH payments are electronic payments that move funds between bank accounts using the ACH Network. The types of ACH fraud scams in use are virtually unlimited. Fraudulent ACH transactions can arise from phishing (where criminals defraud victims to share their account information), data breaches (enabling criminals access banking information), theft of checks and debit cards and account takeover (where criminals manipulate payment systems to take over an account and then execute fraudulent transactions from within the account).  The National Automated Clearing House Association (NACHA) manages the ACH Network by issuing and enforcing the NACHA Operating Rules, which set forth the roles and responsibilities of the parties using the ACH Network, including consumers, businesses, and banks and government entities.

Embezzlements of Business Funds by Corporate Insiders

We advise businesses, and when necessary assist them in the pursuit of litigation to enforce their rights, in recovering losses from embezzlement schemes orchestrated by corporate officers and employees. In addition to the more obvious, direct claims that can be brought against the embezzler, other remedies may be available against banks and other financial institutions who were involved in processing the fraudulent transactions. Depending on the specific facts presented in any given case, claims may be asserted under the Uniform Fiduciaries Act (UFA) and the Uniform Commercial Code (UCC) and for aiding and abetting fraud and breaches of fiduciary duties. Pennsylvania has adopted the UFA, which is found at 7 P.S. sections 6351 through 6404. Various Pennsylvania cases support the proposition that a bank can be liable under the UFA not only when it has actual knowledge of a fiduciary’s fraud, but also when it acts in bad faith by ignoring, or acting in reckless disregard of, irregularities or “red flags.”