Banks Without a Remedy for Fraudulent Check Cashing Scheme?

In a recent Seventh Circuit Case, the dangers of a bank cashing a fraudulent check based on an electronic image raises important business banking concerns.  In a recent Commercial Banking Law Case, an attorney’s client Fumiko Anderson asked attorney Goodson to cash a check for $486,750.33 and forward the funds to her.  Ms. Anderson was located in Japan and informed Attorney Goodson that the check was for a settlement of her divorce based on her securing the representation of his law firm.

Ms. Anderson claimed her husband settled the divorce and issued the check to her to settle the divorce after he learned of Attorney Goodson’s representation.  The Payee on the check was First Aid Corporation, an Illinois Manufacturer doing business as “1st Ayd Corporation.”  The check was presented to First American Bank and was drawn on its client, First Aid Corporation’s account.  Attorney Goodson presented the check to his law firm’s bank, Citizens Bank N.A.  Citizen’s Bank proceeded to cash the check, it was routed through the Federal Reserve Bank of Atlanta to First American Bank.

First American Bank paid $486,750.33 based on an electronic image of the check and the funds were routed through Citizen’s Bank N.A. to Attorney Goodson’s law firm to a Japanese entity.   Attorney Goodson believed that the Japanese entity was his client Fumiko Anderson.  It turned out that this was part of a check cashing scheme–commonly known as the “Fumiko Bandit.”  However, Attorney Goodson believed the funds were his clients and transferred the funds in good faith.  Citizens Bank N.A. was also, a good faith receiver and depositor of the check for value.

First American Bank’s claims against Citizen’s Bank, N.A., Attorney Goodson, and the Federal Reserve Bank of Atlanta all failed.  First American Bank did not request a substitute paper or print out of the check and it did not refuse to honor the check.  Had First American Bank requested a paper copy or a print of the check, then it may have been able to seek indemnity from Citizen’s Bank and any endorser on the check.  However, by not employing this cautionary business practice–First American Bank lost twice.

Not only, did First American Bank lose the $486.750.33 it paid to Citizen’s Bank, but it also had to reimburse its’ client, First Aid Corporation the $486.750.33 that it did not authorize to be drawn from its Bank account.  Thus, the moral of the story is for commercial banker’s to be more savvy–watch their clients’ accounts for: a) unusual activity; b) request a paper copy where an electronic image is presented without the normal security features; and c) be more cautious and have the security features (such as watermarks) on its own checks and images that are issued to its clients.

We need to advise our corporate clients, as well to protect them from having fraudulent checks drawn from their accounts.  Consulting your commerical banking lawyers, otherwise, you risk losing money to the “Fumiko Bandits” and others.   For more details see:   fraudulent-check-scheme case.


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