Over the years I have written a few blog posts on what is the latest version of what can euphemistically be called the Nigerian prince e-mail scam. That is: when someone presents an opportunity of a really good fee for modest work to handle a matter that has money flowing through your trust account. It's the kind of scheme where you believe folks should see red flags waving like crazy, but it persists because someone somewhere continues to fall victim.
I recently sat in on a presentation where it was shared that:
- An estimated 12.5 BILLION dollars is presently lost per year to Cybercrime.
- The number of law firm communications systems compromised via malicious e-mails rose 70% between 2020 and 2022 and continues to increase.
- In 2022, twenty-five percent of all law firm e-mail accounts were hit with malicious e-mails (that struck me as low) and one in twenty firms would suffer a loss (that struck me as high and terrifying).
- AI is going to make these attacks more common and more sophisticated.
The lawyers that seem to be the most under attack are real estate attorneys and it appears to only be getting worse. The long-prevalent scam is one where a lawyer is handling a real estate transaction and unbeknownst to anyone, an email account has been hacked: A bad actor, monitoring the email exchange for who knows how long, on the day of the closing, sends the lawyer an email purportedly from the client with new wiring instructions. There may or may not be a noticeable imperfection in the email address, but the change isn’t questioned. The “updated” wiring instructions are passed along to the paralegal and a large sum of money ends up in the hands of the wrong person — those funds may or may not ever be recovered.
A newer and increasingly more common real estate scam plaguing attorneys is the fake seller. Someone lists property for sale, usually raw land or uninhabited vacation property, and does so through a legitimate agent at an attractive but not unreasonable price with expedited timelines and availability issues. These fake clients are eager to close on the property and push the lawyer. Superficially, everything seems to be on the up and up, but after closing, the real owner of the property inevitably comes forward to disclose the fraud and clear their title. The purchase money is often long gone and the fake seller now in the wind.
It's worth noting that the ALPS LPL policy, and most professional liability insurance policies, do not have coverage for these events. In fact, many cyber policies also do not provide coverage in this instance. This includes the standard cyber policy option we offer in concert with Beazley, which has procedure and system intrusion requirements to implicate coverage and if available usually only provides a $60,000 limit on indemnity.
Now after all that gloom and doom, some good news. ALPS has partnered with CertifID, a funds transfer protection company, as part of our ongoing effort to serve our policyholders better and help protect their clients. For an annual flat fee of $1,000, you can insure 20 transactions and secure lost fund indemnity up to $100,000. Alternatively, for an annual fee of $2,500, a firm can complete up to 60 transactions and the indemnity coverage increases to $250,000. Additional transactions and even higher limits will be available as well.
On the front end, CertifID has enhanced verification protocols before funds are sent, matching parties to bank accounts and properties. Two-thirds of their existing clients have had a fraudulent transaction flagged and stopped as a result. On the back end, CertifID has existing relationships with law enforcement and financial institutions to enhance the chance of recovering diverted funds. For a standard fee of 10% of the recovery amount (capped under the CertifID ALPS package) this funds-recovery service is potentially available to all ALPS policyholders, depending on the situation, with or without purchasing the package. CertifID reports over a 50% success rate for fund recovery clawing back north of 80% on the money.
The best time to address wire fraud is before it happens and CertifID has worked to provide the tools to help lawyers do just that. If money does go out when it shouldn’t, they have resources and a track record to help get as much back as possible and offer indemnity coverages that may not exist for your firm under any of your other polices. CertifID does not cover what ALPS professional liability policy covers and vice versa. This is simply an optional coverage add-on to enhance proactive protection and recovery support with some additional indemnity potential as well.
Mike Flaherty, Senior Claims Attorney : Nov 13, 2024
