Principle Solutions Group, LLC, an information technology company, lost $1.717 million when it became the victim of a fraud scheme for which it sought coverage under the terms of a commercial crime policy issued by Ironshore Indemnity, Inc. The policy provided coverage for “Computer and Funds Transfer Fraud,” “resulting directly from a fraudulent instruction directing a financial institution to debit your transfer account and transfer or, pay or deliver money or securities from that account.” At issue was the meaning of the word “directly,” as it pertained to the pending claim.
The fraudulent scheme involved two imposters. One of the imposters, posing as a managing director of Principle, sent an email that appeared to have been sent from the corporate email address directing the controller of the company to arrange a wire transfer to a bank in China in order to effectuate an urgent company acquisition. The email also instructed the controller to work with an attorney, a Mr. Leach, who was representing the company being acquired, to “ensure that the wire goes out today”. The person purporting to be Mr. Leach also emailed the controller sending wiring instructions to the bank in China, and then called the controller to emphasize that they needed to complete the wire transaction that day. The controller was not able to forward an email to the financial institution to wire the funds because it required more than an email to wire funds from an account. But after taking the necessary steps to effectuate an international wire transfer, including calling Mr. Leach to verify how Mr. Leach had received the wire instructions, the controller relayed this information to the financial institution, and the financial institution released the wire. Shortly after the wire transfer was made Principle learned of the fraud but unfortunately it was too late to recover the funds before they got into the hands of the parties perpetrating the fraud. Read more ›