News & Insights

Case of Interest on liability issues when a bank or credit union receives stolen funds via a funds transfer

May 20, 2025

Banking COI

In Studeco, a metal fabricator was a victim of a fishing scam where hackers penetrated its email systems. Once the computer had been infiltrated, the fraudsters impersonated a supplier and sent an email with a new ACH/EFT payment instruction and the instruction designated a new account at 1^st Advantage Federal Credit Union to pay future invoices. The new account holder had no association with the supplier and instead was controlled by the scammers operating out of Africa. Studeco failed to recognize many red flags but nevertheless sent payments totaling over $550,000.00. Studeco sued the Credit Union who had received the funds and claimed that the Credit Union had negligently failed to discover that the scammers had misdescribed the account even though the Credit Union had been provided various notices from its core system. Apparently, the Credit Union did not have actual knowledge of the misdescriptions of the beneficiary. Ultimately, the trial court ruled in favor of the plaintiff, but the 4^th Circuit reversed and ruled in favor of the Credit Union claiming that UCC § 4A-207 required that the Credit Union had “actual knowledge” of a misdescription of a beneficiary before it could be liable. See Studeco Building Systems v. 1^st Advantage Federal Credit Union, 2025 W.L. 907858 (4^th Cir. 2025). There are other cases that have held to the contrary. As these types of fraud situations become more common, the Studeco case may turn out to be an important case in the banking industry.

No information in this communication is intended to constitute specific legal advice. For specific legal advice, please contact an attorney, and if you have any such questions or would like more information about this issue, please contact William “Pat” Huttenbach at 713.752.8616, or email at phuttenbach@craincaton.com.

Thanks,

Pat

Studco Building Systems US LLC v 1st Advantage Federal