Posted on 07/17/2003 9:58:58 PM PDT by TheMole
Until last November, Krista Donahue considered herself a huge fan of credit unions.
In 1998, working as a field director for Hill & Knowlton, she helped marshal support for legislation that expanded membership access to credit unions. After the bill became law, she was one of the first lobbyists to open an account with the Wright Patman Congressional Federal Credit Union, the 50-year-old financial institution serving House Members and staff.
But since Donahue attempted to sell her car over the Internet last fall, a series of mysterious e-mails and phone calls from Nigeria, a craftily forged cashier’s check and a dispute over rules governing financial deposits have left a gaping hole in Donahue’s checking account and sparked bitter ongoing litigation with the low-profile credit union.
In placing an online ad to sell her rare 1990 Buick Reatta for $6,500, Donahue unwittingly became a victim of the latest Internet scam sweeping across the country. It’s a new and more effective incarnation of a decades-old con hatched by crooks based in Nigeria, an illicit financial scheme that has already cost consumers millions of dollars in the few months it has operated, according to the Secret Service and an online group of scam victims.
The scam deviously exploits the complex set of federal rules governing bank deposits, which are misunderstood by most consumers and many bank employees alike. And, according to victims, the con artists prey on the honesty of their targets.
Late last October, Donahue, who was at the time working on the staff of Sen. Debbie Stabenow (D-Mich.) and now works for Sen. Dick Durban (D-Ill.), received an e-mail from someone calling himself Ayomide Olawale. It seemed unusual but enticing. He said he was a used car and parts dealer with offices across Africa. He offered Donahue $6,000 for the car and helpfully suggested a way to speed up the transaction.
A client of his in the United States owed him $9,890. He would instruct the client to procure a cashier’s check for that amount and send it to Donahue.
“You know it takes 24 hours for a cashiers check to clear in the U.S.,” Olawale wrote. “But I would want to know if I can trust you to send my balance to me via western union money transfer after the money must have cleared in your bank to enable me prepay the shipping company here so that they can instruct their office in the U.S to come and pick the Golf from your location,” the e-mail said, apparently confusing the make of the car Donahue was selling.
Donahue quickly verified that it was a Reatta she was selling and agreed to the deal. On Nov. 12, 2002, a FedEx package containing a cashier’s check drawn from the Bank of America for $9,890 arrived at Donahue’s Arlington, Va., apartment. The billing slip indicated the package was sent from Jackson, Miss. A phone call from a heavily accented man who said he was Olawale calling from Nigeria confirmed that Donahue received the check and instructed her to wire the overpayment, including a fee, of $3,783 by Western Union to a Nigerian address.
Rising Suspicions
Although the check appeared completely authentic, Donahue remained suspicious. She took the check to the Wright Patman FCU branch office in the Longworth House Office Building and carefully laid out the situation to a credit union representative. “I sat down with the guy and said I’m totally worried about getting scammed here,” she recalled. She wanted to know the credit union’s procedures for dealing with cashier’s checks and questioned the credit union teller about the length of time she should wait to be certain that the check cleared.
According to Donahue, the credit union representative inspected the check and assured her that it was the same as cash. But she persisted in asking questions about the procedures and protections available to her in handling the check.
The credit union teller repeatedly assured her that because it was a cashier’s check, she would have immediate access to the money once she deposited the check into her account.
Donahue said she remained leery. “I was worried about this being a fraud and I bluntly asked him if there was any way I could get screwed on this,” she said. The credit union teller replied “no,” according to Donahue.
Robert Hess, the credit union’s president, did not respond to a detailed message seeking comment. But in court papers, the credit union denies that part of the conversation ever took place.
Donahue deposited the check but waited a day before withdrawing $3,783 and wiring the money to Africa. Five business days later, on Nov. 18, the credit union debited Donahue’s account by $9,890 after the Bank of America determined that the cashier’s check was a forgery.
Donahue’s checking account now showed a negative balance of $2,424 and her electronically transferred Senate payroll check had just been sucked into the financial black hole even as returned check charges mounted against her account from other checks she had recently written.
Routine Procedures?
Accompanied by a friend, she returned to the same credit union agent she had first met with, who she said expressed surprise at the situation. Donahue said that after reviewing the matter, the agent for the first time indicated that he recalled another credit union member dealing with the same sort of situation.
Later that day, a credit union security agent contacted Donahue and accused her of passing a counterfeit check, demanding that she immediately make restitution.
Donahue then began an ultimately futile series of correspondence with credit union officials, contending that she had relied on the mistaken advice of the credit union’s own staff and shouldn’t be left holding the bag after trusting the advice she received.
But credit union officials held firm, insisting that the responsibility rested on Donahue, not them.
“The information provided by our employees was correct,” wrote Cheryl Rosser, the credit union’s director of internal audits and security in a Dec. 6 letter. “A Cashier’s Check, as an obligation of the financial institution on which it is drawn, is considered a guaranteed item. Our staff would have no way to know that the item you deposited was counterfeit and as such worthless.” She suggested that Donahue should have verified with the Bank of America that the check was valid if she was suspicious.
“Unfortunately Ms. Donahue, the Credit Union will not be able to credit you the amount requested,” Rosser wrote.
But Donahue contends that the credit union representative she met with never told her that she should have taken the check to the Bank of America and that she would have done so if she had gotten that advice.
“I did expect (as any reasonable person would) that when I explained my concerns about the check’s validity, he would inform me of what you called ‘routine procedures’ so I could have made a truly informed decision about how long to wait before withdrawing $3,783. Instead, he told me the check was cash,” Donahue said.
The credit union then responded with a letter to Donahue from its outside legal counsel, the firm Shook, Hardy & Bacon.
The letter acknowledged that Donahue had been ensnared in a relatively new Internet-based scam. “From experience, we know that you were not alone in being duped. Several other institutions we represent have undergone the same disappointment as the Internet is too available a tool for fraud to offer any hope that your case is the last that will occur.”
‘A Very Good Forgery’
The law firm placed the blame on federal rules governing deposits in financial institutions. Federal Reserve rules require banks to make money from cashier’s, certified or teller’s checks available within one to five days of deposit. Unfortunately, that is less time than it takes for the check to be cleared in the financial system, a process in which the check is routed back to the bank of origin, where the check can be verified and an account can be debited. And that’s the crucial period of time because the victim will have already wired the money to the swindler before anyone has a chance to figure out that the check is worthless.
In some instances, it may take weeks or months to determine that a check was fraudulent. In the months after Donahue first approached the credit union, at least seven states warned their residents about the scam.
In April, the Internet Fraud Complaint Center, a joint project of the FBI and the White Collar Crimes Center, which refers victims to law enforcement agencies, made note of the new version of the Nigerian scam in its annual report. In 2002, at least 74 people lost $1.6 million due to the Nigerian scam, a figure that the report noted was likely much higher.
A spokesman for the Secret Service, which investigates counterfeit checks, said his agency is receiving more and more complaints about this new scheme but was unable to provide any statistics on the problem.
An online support group, www.scamvictimsunited.com, reports hundreds of recent cases all extremely similar to Donahue’s tale.
The Secret Service has set up an office in Lagos, Nigeria, to combat the problem, the spokesman said, but efforts remain stymied.
“The Bank of America Cashier’s Check was a forgery, a very good forgery,” the credit union’s law firm noted. Regardless, the credit union can’t be held responsible and was completely within its rights to charge Donahue’s account for the full amount of the fake cashier’s check, the firm’s letter said.
“The fact the bargain went badly does not make the Credit Union the guarantor of the transaction. If by accepting any instrument, the risk of nonpayment were suddenly shifted to the receiver of the instrument, the payment system that fuels the economy would cease to function. That is why there are carefully constructed rules that have been enacted in each of the 50 states and the District of Columbia to govern your transaction,” the firm wrote.
Unable to resolve the dispute, Donahue filed suit in the small claims division of the District of Columbia Superior Court. Donahue argues that the bad or incomplete information given to her by the credit union representative shifts the responsibility for the bad check back to the credit union. Under the legal doctrine of detrimental reliance, the normal rules governing deposits don’t apply since she relied on the credit union’s allegedly mistaken advice, she argues.
In its reply brief, the credit union suggested that the financial integrity of the nation was at stake with this case: “There is no question in this case that the Plaintiff is the victim of a Nigerian scam. However, to shift the responsibility for this unfortunate fraud to the credit union, which simply fulfilled its function under the Uniform Commercial Code and its contract with Plaintiff, would undermine the policy of predictability, which the Uniform Commercial Code promises those institutions that operate according to its provisions. Ultimately, it is the very stability of the carefully crafted and efficient check clearing system which is at risk here if the Uniform Commercial Code is overruled, and Plaintiffs claim is upheld.”
In addition, the credit union brief noted, Donahue, “formerly with the powerhouse firm of Hill & Knowlton and a college graduate, is an intelligent and sophisticated individual. Defendant’s customer service representative … is high school educated and who was before joining the credit union a checker at Safeway.”
While not disputing that Donahue was suspicious of the check and sought advice, neither the credit union representative nor other branch officials were familiar with forged cashier’s checks.
A required attempt to work out the dispute through arbitration failed. Donahue said she was willing to settle if the credit union simply brought her negative balance, now about $1,056, up to zero. But the most the credit union would offer was to refund the $25 returned check fee and to incorporate Donahue’s case into their training for employees.
“They weren’t willing to make any goodwill gestures, but they did acknowledge in mediation that their training was lacking,” Donahue said.
Now awaiting a judge’s decision, she said she is outraged with the credit union’s handling of the dispute. “They have been absolutely atrocious in the way they have treated me. The Nigerian scam can happen to anyone. I mean I have a master’s degree from Harvard, I’m not stupid. And I really did rely on my bank to help me figure this out and I wouldn’t be out this money had they told me the true story.”
Editor’s note: Damon Chappie maintains several accounts with the Wright Patman Congressional Federal Credit Union.
not really. this has been around for years. even my leftist, i don't care about money, professors have joked about this scam. how dumb could this person be?
on the other hand, the first time i heard about the scam was on a news feature focusing on an accountant who had lost most of his life's savings due to the nigerian scam... sometimes edumakashun doesn't help.
You'll understand if I'm a bit vague about specific methods and practices, I hope, but it really depends on what you mean by "reasonable time". If by "reasonable time" you mean "immediately", then you're probably better served by using ACH transfers or Western Union in the first place.
This is really a serious problem... it threatens to end the utility of cashier's checks and money orders.
Ultimately, the long-term solution is to eliminate paper altogether. It's the only way in the long run - paper just makes fraud too easy.
on the other hand, the first time i heard about the scam was on a news feature focusing on an accountant who had lost most of his life's savings due to the nigerian scam... sometimes edumakashun doesn't help.
Hmmm, no kidding.
That really is something I had not thought of.
What would happen if you take the check directly to the issuing bank and have them give you the cash; would you know then?
Back in the long ago, this would actually be accepted.
My grandfather once told me a story about buying a mule with a check written on a torn-off piece of a grocery bag, since he had run out of printed checks. It was a small town, and the seller and banker were both good friends of his, so it was no problem.
You might still be able to do it if you didn't mind the processing being delayed.
-ccm
Strictly speaking, you ought to still be able to do something like that. Generally, a valid check has 5 main elements: 1) the name of the payee; 2) the routing number of the bank it's drawn on; 3) the account number it's drawn against; 4) the signature of the account holder, and; 5) the dollar amount of the check. Well, probably 6 things - your bank would undoubtedly appreciate it if it had a check number as well, although you might be able to get away without that. As long as a piece of paper has those 5 things, it should be treated as a valid check, although it would probably be wise to check the laws and banking regulations in your state to make sure.
It might be amusing to produce your own check as payment for something, just to see how well it would work - put those things in the proper format on a 3"x5" card or something, and see what happens. It may be a legal, valid check, but you can probably expect a lot of phone calls as it works its way through the system ;)
Tradegy's obviously gone, but what are the other two lists?
Which means she's good at basket weaving, chugging a beer,getting a job as a LIEberal hack aide and drooling on a Kennedy.
Otherwise, she is ill prepared for life. That degree ouitside D.C and $3.00 might get her a latte at Starbucks.
She has obviously been "in the red" for some time now.
I admit that the woman was not the sharpest knife in the drawer for dealing with a Nigerian used car salesman, but, it does bring up an interesting point. In a transaction, when is the money actually yours? I've been thinking about selling my car myself (also traded-in in the past) and was trying to figure out when to let the buyer drive off in my car. If I demand a Cashier's check and walk the buyer down to my bank to deposit it, I'm still not guaranteed that the transaction is completed. If the CC was a forgery, then I'm out an automobile.
Help me out! How do I handle a private automobile sale properly???
I'll tell you what we did recently, actually - we weren't selling a car, but several large appliances, through the classified ads here. Fridge, stove, and a washer/dryer set. And I told them up front that I would accept cash, check, or certified funds as payment, but that I would need a photocopy of their driver's license with the last two, and they had to be from a local bank - no checks or money orders drawn on the First National Bank of Upper Volta, or any of that kind of thing. Turned out that all three of them paid with personal checks, so while I was copying their licenses for ID purposes, I also put in a call to their banks, asking for funds verification - when I got the okay from the bank, I said "Here you go, it's all yours - need any help loading it up?" And then as soon as they were driving away and out of sight, I got in my car and drove directly over to their bank and cashed the check.
I did that for all three buyers, and never had a problem with any of them that way. Besides fraud, it avoids a lot of other potential hassles - one lady that I work with sold an air conditioner through the paper, one of those window units. And she deposited the check she was given as payment, only to find out a couple of days later that the buyer had stopped payment on the check, allegedly because the air conditioner was "broken". Turned out that it was only "broken" because when they were unloading it from their car and bringing it into the house, they dropped it and it fell down a flight of stairs.
Remember, though, this kind of fraud is still pretty rare - the odds of you encountering someone who intends to defraud you are pretty low, and with some basic common sense, you can greatly reduce the risk even further, even if you can't really eliminate it at all. If you are really and truly worried about this kind of thing - perhaps you're selling a rare and/or exotic automobile to potential collectors for a lot of money - you can always offer to place the car in escrow pending the completion of payment. That way, both you and the buyer are protected against fraud in the transaction...
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