Friday, August 11, 2017

Lawsuit: Computer Hacker Dupes Homebuying Couple Out Of $1.57 Million In Closing Cash By Allegedly Commandeering Title Agency's Servers, Then Sending Them Phony Email Request For Funds; Victims Include $5 Million RICO Claim In Legal Action Against Closing Agent, Others

In Washington, D.C., WAMU-Radio 88.5 FM reports:
  • When hopeful D.C. homebuyers Sean Smith and Erin Wrona were asked earlier this year to wire their title company $1.57 million, they took it as a routine request ahead of closing on the purchase of a five-bedroom, 2,300-square-foot Cleveland Park home.

    But when they went to the offices of Federal Title & Escrow a month later to sign the final paperwork, an attorney for the company informed them that the funds the couple thought they had wired had not ended up in escrow as expected. In fact, no one at Federal Title even knew the money had been sent.

    A new lawsuit now sheds some light on the mystery of the missing money: Smith and Wrona apparently fell victim to a hacker who had commandeered Federal Title’s servers and sent the couple an email asking that they wire the $1.57 million for the home purchase to a bank account that, unbeknownst to them, was controlled by the hacker.

    It’s a practice known as phishing, and while it’s not a new scam — it’s how hackers gained access to John Podesta’s email account last year, for one — it is fairly new in the realm of real estate transactions.

    Last year, the Federal Trade Commission and National Association of Realtors teamed up to warn homebuyers of phishing attempts:
  • Hackers have been breaking into some consumers’ and real estate professionals’ email accounts to get information about upcoming real estate transactions. After figuring out the closing dates, the hacker sends an email to the buyer, posing as the real estate professional or title company. The bogus email says there has been a last minute change to the wiring instructions, and tells the buyer to wire closing costs to a different account. But it’s the scammer’s account.
  • Unlike the victims in those scams, many of which involved closing costs involved in home purchases, Smith and Wrona lost almost the entirety of what they were going to pay for the house, spare the $200,000 they put down separately as a deposit. (The sales price was just north of $1.7 million.)

    In a statement, Federal Title spokeswoman Nikki Lyon says the incident stemmed from “what appears to be a cybercrime attack on our information systems.”

    “Federal Title discovered the attack and immediately reported it to the FBI. Federal Title continues to work with the FBI as they complete their investigation. Federal Title’s internal review has revealed that no other customers were affected by this attack,” she said.

    Those assurances are not enough for Smith, who works for a U.S. senator, and Wrona, a statistician with the U.S. Census Bureau.

    Last week, the couple filed a lawsuit against the company, alleging that Federal Title either conspired to defraud them of the $1.57 million or was so negligent in its online security protocols that it all but allowed the money to be stolen by someone else.

    “Federal Title either caused our money to be stolen or stole it, and we need to get our money back,” said Michael Nadel, the couple’s attorney. “We don’t have any evidence that it happened because of hackers other than Federal Title’s say-so.”

    Nadel also says Federal Title, which has offices in Friendship Heights and Logan Circle, failed to effectively communicate with Smith and Wrona ahead of the closing — a situation he attributes to the company being involved in the scheme.

    “Federal Title never called Sean Smith and said, ‘Bring your money to closing,’ and didn’t even bring it up until the middle of closing. So if they weren’t responsible for helping steal the money, it certainly seems like they knew well in advance of that closing that the money was gone. Their conduct shows that,” he said.

    The pair is asking not just for their $1.57 million, but also close to $5 million for an alleged violation of RICO — the Racketeer Influenced and Corrupt Organizations Act, the law best known for its use against the mob — plus punitive damages and attorneys’ fees.

    Federal Title’s Nikki Lyon denies that the company had anything to do with the money going missing.

    “While the investigation is ongoing, Federal Title wishes to unequivocally and categorically deny the plaintiffs’ allegations that FTE and its employees were somehow complicit with the person or persons who perpetrated this scheme,” she said in the emailed statement. “The allegations in the complaint are false and misleading and FTE will fully defend this matter.”

    Last month, Federal Title used its official blog to warn consumers of phishing scams like the one they say Smith and Wrona fell victim to.

    “Federal Title & Escrow Company will only send wire instructions to clients via email, in a secured format and only upon request,” said the company in the blog post.

    Lyon says there’s a lesson to be learned from this experience.

    “This incident should serve as a reminder to the public about the importance of cybercrime awareness and education,” she said.

    Smith and Wrona did ultimately buy the house. According to the lawsuit, the couple and their family “wired an additional $1.57 million to close the transaction.”

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