Bank wires fraudsters over $800K of retiree's savings, despite red flags

A Calgary retiree says he was "sick to his stomach" after learning his bank wired more than $800,000 of his savings to fraudsters despite security red flags.

Rod McLeod, 75, was a longtime customer with Cidel Bank one of dozens of private banks in Canada that handle wealth management for people with high incomes or sizeable assets.

"It has turned my life upside down," says McLeod, a retired lawyer. "I expected them to protect me."

McLeod is suing, alleging "negligence, breach of contract and breach of fiduciary duty" by Cidel in a statement of claim filed last week.

It's one more case of what's become a multibillion-dollar problem in Canada and the U.S., according to authorities.

Wire fraud is a "huge problem" and "so rampant," investigator and former FBI agent Don Vilfer told Go Public, that better laws are needed in Canada and the U.S. to protect bank customers.

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"Legislation in both Canada and the U.S. is behind in terms of requiring financial institutions to take certain steps [to prevent] this kind of thing,"Vilfer said.

In September 2018, McLeodwas excited to make an offer on a condo in Rancho Mirage, Calif. just north of Palm Desert.

He had Cidel wire a deposit to a California bank account and waited for instructions on the outstanding balance of $619,000 US ($820,000 Cdn).

A few weeks later, an email supposedly from the realtor handling the sale, said the balance should go to a different bank Chase Bank in Denver, Colo.

Even though his escrow agent had cautioned him, two months earlier, against any sudden changes, McLeod says the warning was forgottenin the push to seal the deal.

The seller, he'd been told, was a billionaire."So it made sense that he banked in several places."

McLeod sent the new instructions to his contact at Cidel.

But the email wasn't from his realtor,Brady Sandahl. It was from a new email address, created byfraudsterswho hadtransposed the last two letters of Sandahl's nameso that, at first glance, it appeared legit.

When that email arrived at Cidel, it appears the bank's mail server flagged it, tacking "SUSPICIOUS MESSAGE" onto the subject line.

Despite that warning,a bank employee emailed the fraudster, asking for the address of the bank account owner adding a senior Cidel employee and McLeod to the email thread.

McLeod says his excitement about the condo got the better of him. He didn't notice the email had been flagged, and, he says,had no prior experience wiring money to another country.

"I don't do this every day. This is something that's totally new to me," he said.

"My wife said, 'You wanted it too much, you ignored the red flags.'"

McLeod and his wife authorizedthe wire transfer. The money went to Denver, where fraudsters quickly transferred most of it to the Bank of China in Hong Kong.

Days later, when McLeod made inquiries about next steps, it became apparent he was the victim of fraud.

"I thought, this can't be happening," he says. "It just can't be happening."

Chase Bankwas able to keep $26,000 US from being transferred, and that money was returned to McLeod.

McLeod hired Vilfer to investigate. Since leaving the FBI over a decade ago, Vilfer has testified in over 100cases, often providing expert testimony on digital forensics in cases involving wire fraud.

"It's very profitable for the fraudsters when they can pull it off," he says."We had one client that lost $14 million and they're [fraudsters] doing this all day long."

In his report to McLeod, Vilfer says the realtor's email account may have been compromised and recommended further analysis of the realtor's devices and accounts.

"With email hijacking scams of this type, in my experience, it is the realtor or mortgage broker who is targeted," he wrote.

Sandahldid not respond to calls for comment from Go Public.

Multibillion-dollar problem

The case is an example of what investigators call "business email compromise" a type of wire fraud that targets businesses and their customers. Typically, the fraudster hacks into a business's email accountand impersonates the sender, instructing the customer to redirect the money.

Go Public recently investigated this type of scam,and spoke to a Toronto-area businessman who lost almost $3,000.

Compromised business emails particularly in the real estate sector led to an estimated loss of $12 billion US over the past five years, according to the FBI.Such scams were reported in 150 countries, and all 50 U.S. states.

Vilfer says McLeod's bank Cidel should have stopped the scam in its tracks.

"You have the flag on the email that it's a suspicious message," says Vilfer. "And with this kind of fraud that's so prevalent that should certainly cause some sort of alarm,to take an extra look at this and seewhy is this being flagged?"

"Good technology ... apparently was ignored," he said.

'Gross negligence'

In the statement of claim against Cidel, McLeod's lawyer, Brett Code, alleges the bank's actions "represent a marked departure from the required standard of care, and constitute gross negligence."

It seeksfull compensation for McLeod's loss.

None of the allegations has been proven in court andCidel has not yetresponded to the statement of claim.

In one of two emails to McLeod,Cidel CEO Craig Rimer wrote:"We are very sorry that you've had to go through this terrible experience and for the financial loss you endured."

However, he wrote, Cidel has no obligation to reimburse McLeod.

In a second, one-line email, Rimer blamedMcLeod for the wire fraud, writing, "The introduction to the email address came from you and you authorized the transaction after much back and forth between them [fraudsters] and you."

Rimer declined to be interviewed but sent Go Public a statement saying, "We acted in accordance with the express written and signed wire instructions that were delivered to us by our client."

• Read Cidel's full statement here

He would not outline what policies exist at the bank when it comes to conducting wire transfers, but wrote that Cidel acted in full compliance with all industry standards and that the bank will continue to assist its client in recovering the funds from "an unscrupulous third party."

Better protections needed

There is no legislation in Canada or the U.S. that requires a financial institution to confirm the identity of a bank account holder who is receiving a wire transferto prevent fraud and protect customers.

It's considered a best practicefor banks to confirm they are sending a client's money to an appropriate destination, but Vilfer the former FBI agent thinks that needs to become law.

"We're just relying on the banks doing the right thing," he says. "It would be a good idea for both the United States and Canada to stiffen up the statutory requirements; require policies for protecting against this sort of fraud."

The largest insurer ofU.S. banks, ABA Insurance Services, said recently it's "critical" that banks start making phone calls toauthenticate wire transfers, among other procedures.

McLeod knows his lawsuit against Cidel could drag on for years.

"If I don't win this, I'm throwing good money after bad," he says. "And they can outlast me. I'm 75 years old."

He's also moved his remaining assets to another management company.