Regarding fraudulent checks: I have a few recommendations to deter fraudsters' attempts and prevent losses.
My background: I was a banker (in California) for 18 years and have worked with many, many title and escrow companies. I ran the Title/Escrow, Cash Management, and Correspondent Banking Divisions for my bank (Imperial Bank) for six years.
In the early 1990s, my bank was dealing with a huge check fraud problem - $100,000+ counterfeit checks hitting our title companies' trust accounts!
In November of 1992, I heard Frank Abagnale (Catch Me If You Can) speak about check fraud. He spoke for two hours, without any notes, to a group of 700 bankers, CFOs, and Finance directors. I was blown away! I came to this conference specifically looking for answers, and Frank Abagnale, whom I had never heard of before, had all the answers! I hired Mr. Abagnale in 1993 to help educate our customers about Positive Pay and to design a very high-security check (SAFEChecks) for our customers to use. (I bought the SAFEChecks division from my bank 25 years ago, shortly before my bank was acquired by a larger bank.)
Hiring Mr. Abagnale was a no-brainer. He is the smartest guy in the room! I believe those of you who have heard him speak would agree with that assessment. (Over the years Mr. Abagnale has spoken three times for ALTA, in Orlando, Phoenix, and Seattle. It's time to bring him back.)
Mr. Abagnale publishes a Fraud Bulletin that directly addresses check fraud, cybercrime, embezzlement, holder in due course, etc. It is 32 pages and can be downloaded from his website: Frank W. Abagnale Jr. https://abagnale.com/. On his Home page, scroll down a bit to "What's New" and click on the Fraud Bulletin. It is packed with information! Page 15 in the Bulletin talks about a new, high-security paper for checks: "Signature Paper," with Frank Abagnale's signature in the true watermark. More about Signature Paper below.
Four (4) Recommendations:
Every title company MUST use Positive Pay or Payee Positive Pay. Many of you are already using Pos Pay. Smart! Be advised that Payee Positive Pay is better than Pos Pay. More on Payee Pos Pay below.
Positive Pay is an automated check-matching service offered by most banks. Be advised: If your bank recommends that you use Pos Pay and you fail to implement it and later suffer a check fraud loss, it is extremely unlikely your bank will reimburse your loss (unless the loss is small). If you sue the bank you will likely (not absolutely) lose. Why? Because the bank gave you a specific security recommendation and you chose to ignore it. When the bank recommends a security procedure, especially if it is in writing (email), you are given "notice." It's a legal thing.
I do expert witness work in check fraud cases. The most recent case - settled last month - one counterfeit check: $232,000. And, a new case I'm on: $5,000,000, several large-dollar checks. Neither company was using Payee Pos Pay.
How Positive Pay works:
Every day checks are issued, the company uploads the list of issued checks ("check-issue file") to the bank. As those checks come into the bank and are presented for payment, the bank matches those inclearing checks against the Pos Pay files you uploaded. If a check presented for payment is not on the list, or if the dollar amount or Payee Name (for Payee Pos Pay only) does not match, the check is kicked out as a "suspect item." The bank notifies the company by 8:00 AM of any suspect items. Someone at the company must log into the bank's Pos Pay system before 1:00 PM (later on the East Coast) and review each suspect item (check) and make a "Pay" or "Return" decision for each check.
IMPORTANT: When you first set up Positive Pay, the bank will give you a choice of what you want the bank to do with any suspect items if you fail to log in and review by 1:00 PM. The choices are: Pay All or Return All. I recommend "Return All" because it's a lot easier to apologize for an inadvertently returned check than get the money back.
"Positive Pay" matches only the account number, check number, and dollar amount against the check-issue files you gave them. Pos Pay does not match the Payee Name. "Payee Positive Pay" matches the Payee Name, account number, check number, and dollar amount.
To use Payee Pos Pay, the Payee Name must be printed in a specific X,Y coordinate on the check face. Banks prefer that the Payee Name is printed using a 12- or 14-point, non-Serif font, and printed in ALL CAPTIAL LETTERS. there are fewer false positives when you comply. If your IT staff has problems creating the Pos Pay file, or if printing the Payee Name in the exact required X,Y coordinate seems impossible, or you find the entire Pos Pay file creation process is too time-consuming, there is software available that will create a properly formatted Pos Pay file and print the Payee Name precisely where it needs to be printed while you're printing checks. Automatically. And, it will work with your existing title and accounting software. Email me if you want more information. Greg@SAFEChecks.com
NOTE: Positive Pay will not catch unauthorized ACH debits.
2. Use ACH Positive Pay or ACH filters and blocks
ACH Positive Pay allows pre-approved ACH debits (specific dollar amounts) to post and blocks everything else. An ACH block will block all ACH debits from paying against an account; every trust account should have an ACH block placed on it. Use an ACH filter on all the other accounts. ACH filters allow the vendors you authorize to debit your account and will block all ACH debits coming from sources/originators that are not pre-approved.
3. Use high-security checks
Just because a check printer claims it has "high-security" checks doesn't make it true. Many check printers offer alleged high-security checks with a plethora of security features, and then they sell those checks entirely blank to whomever wants to buy them, without any verification of the buyer or ship-to address at all! Fraudsters buy them! So have I... I've purchased alleged high-security checks from every major check printer in America. I use a bogus name and an account number I closed in 2013. I've gotten checks every time!
Example: In a check fraud case in Houston involving a Rice University graduate - who apparently failed to pay attention in his religion classes bcz he became a prolific check forger after graduation - when the guy was arrested and Houston PD got a search warrant, they found 150 different styles and colors of blank laser check stock in his 3rd bedroom upstairs. This guy was creating counterfeit checks using software, a scanner and original check stock he bought from the same check supplier as his victims!
High-security checks are printed on "controlled" paper that is simply not available to everyone. The check stock is never sold entirely blank to other companies without something first being printed on the face that is unique to each company. If a fraudster can get your check stock entirely blank, they can replicate your check perfectly, including your scanned signatures.
Some of you may be thinking re: fraudsters replicating your checks, "Heh. No problem. I'm on Positive Pay." Big News Alert: Holder in Due Course trumps Positive Pay and even Stop Payments!
Holder in Due Course (HIDC)
Even if you catch the counterfeit checks on Pos Pay, you could still be held liable for those checks because of "holder in due course," which is part of the UCC. You can be held liable if the counterfeit checks look like yours - if they look "genuine." Read three paragraphs down about an Appellate Court case involving this very circumstance and HIDC.
4. Deterrence
Mr. Abagnale frequently says, "Most crimes are crimes of opportunity. If you make it easy for people to steal from you, they will." The converse is also true, which we discovered at Imperial Bank. After we implemented Pos Pay and our high-security checks, the check fraud attempts at Imperial Bank fell 95% over three years. (We think the fraudsters went to Bank of America and Wells Fargo, which was okay with us!) Make it difficult for the fraudsters and they'll find an easier target. High-security checks matter; Positive Pay matters.
The Positive Pay file-creation software I mentioned above can also print an encrypted 2-dimensional barcode on the face of the check. The barcode includes everything in a Payee Pos Pay file, as well as the user ID# of the employee that printed the check... it deters fraudsters and embezzlers!
One of the things we have done for hundreds of customers (at no additional charge) is print along the right margin of the check, "THIS CHECK IS PROTECTED BY PAYEE POSITIVE PAY" - and, along the left margin, "PAYEE NAME AND AMOUNT ON FILE AT THE BANK" We're telling the fraudsters in advance that the check is on Payee Pos Pay; fraudsters know what Pos Pay is. Roughly half of these customers use Positive Pay; the other half are just liars! It's psychological warfare - deterrence - and we're perfectly okay with that!
Appellate Court and counterfeit checks that look "genuine."
There is an Appellate Court case where a company was held liable for counterfeit checks that were caught by the bank and returned unpaid. The returned checks were charged back to check cashing stores, retailers, etc. A guy who went to law school but is not an attorney (Robert Triffin) bought several of those returned checks from four different check cashing stores. As a "holder in due course," a legal status Triffin automatically acquired when he bought the checks, sued the drawer (issuer) for negligence for not controlling its check stock. Both Plaintiff and Defendant agreed the counterfeit checks looked like the company's actual checks; even the three-color facsimile signature had been replicated. Both the lower court and the Appellate Court said that the checks looked "genuine," and ruled in favor of Triffin. Both courts ordered the drawer to pay Robert Triffin the full face value of those returned checks he bought at a steep discount off the face value! If you want to read a white paper on Holder in Due Course that includes this case, email me at Greg@safechecks.com. The white paper was written by Frank Abagnale and myself.
More about Signature Paper here: https://www.youtube.com/watch?v=jEf2qvmAZvM
Finally, there is a reason in 1993 we called the checks Mr. Abagnale designed for my bank, "SAFEChecks." They're even better today.
I hope this helps some of you. I always like to hear war stories where the fraudsters lost; feel free to reach out.
Greg Litster
President
SAFEChecks
(800) 755-2265
Greg@safechecks.com
------------------------------
Greg Litster
President
SAFEChecks
Simi Valley, CA 93063
(800) 755-2265
www.safechecks.comGreg@safechecks.com------------------------------
Original Message:
Sent: 09-07-2022 10:34
From: Dee Harrison
Subject: Fraud Checks
I have also been having fraudulent checks written on my Escrow Account. These appear to be mailed out to roofing companies in the Mid West States for roof work. I have reported this to the Police and was conferenced in on a call with the scammer. I literally heard this man states that he owns Alpha Reliable Title in Orlando, and that is why he is paying with "his" company check!!!
------------------------------
Dee Harrison
+1 (321) 304-3906
------------------------------